Financing Sr and Ed Claims - A Canadian Working Capital Alternative

SR ED financing (also known as SR and ED) is an innovative way for Canadian private companies to generate short term working capital and cash flow for their operating requirements. To be eligible to finance a claim it makes sense that first of all you have to have a claim! The SR and ED program is a Canadian government program which allows private Canadian firms to receive a large amount of funds back as a non - repayable ( yes we said non-repayable!) grant to be used for operating capital, and hopefully further investments into research and development and innovation in the Canadian business marketplace .

Companies who choose to finance their SR ED claims generally find that their current working capital financiers, for example the Canadian chartered banks, do not finance SR ED claims. Our own experience is that if in fact a Canadian bank finances a SR ED claim for you their will require an extra collateral base, or that you probably aren't using your full authorized facilities at the present time . SR ED financing is for those Canadian firms that require working capital and cash flow now. They do not want to wait 3, 6, 12 months of even more to get their cheques from the government.

So how do Canadian firms go about financing that SR ED claim, or at least investigating the possibilities? We recommend that because of the boutique, somewhat niche nature of SR ED financing that you work with someone who is trusted, credible, and experienced in this area.

The essence of a SR ED financing is the short term securitization or collateralization of your SR ED claim. The claim can be financed immediately after you have filed the claim, not before. In Canada companies file their SR ED claim in conjunction with their year end tax filing. At that point you are eligible to receive financing for your claim. A properly finance claim will net you about 70% of the total claim value. The arithmetic around that is pretty compelling, lets use a quick example - Your firm has filed a 300,000 SR ED claim and is now eligible to receive 210,000 of financing under that 300K claim. These funds of course can be used for any general corporate purpose. Because the SR ED financing is a short term working capital arrangement , usually repaid within a year or less, companies in our experience tend to utilize the funds for general working capital, i.e. suppliers, payroll, and continue r and d investment of course . We are hearing more and more about factoring or invoice discounting in Canada - the SR ED financing is in essence a form of factoring or discounting your SRED - i.e. getting much needed cash flow today, not waiting one year !

To finance your SR ED you must have of course a properly filed claim. That is best done via a SR ED preparation consultant or your own accounting firm.

In summary, Canadian firms should categorically avail themselves of SR ED grants that are due them under the program. If you have filed the claim and wish to generate immediate cash flow and working capital for your claim work with a trusted SR ED finance advisor who can maximize the benefit of the claim via turning your filing into immediate cash flow .