The Rise of SR&ED Financing in Canada: Why A Vancouver-Based VC Firm Recommends It To Their Portfolio Companies

As SR&ED (scientific research and experimental development) financing emerges as a vital funding mechanism, especially among startups and scaling businesses, more and more Canadian companies are taking notice. This innovative funding option provides businesses with working capital by leveraging the value of accrued eligible expenditures that are otherwise locked up throughout the year. Despite its increasing utilization, some misconceptions about how SR&ED financing works still persist in the market. This article aims to address those misconceptions, enabling companies to make informed decisions regarding their growth strategies.

Introduction to SR&ED

The SR&ED tax credit program is well-recognized among Canadian businesses engaged in R&D activities as Canada's most substantial government funding source for R&D. Through SR&ED, the federal and provincial governments dispense more than $3 billion annually in tax credits to around 20,000 claimants. (Not every province or territory offers R&D tax credits - for details on regional variances, refer to this resource). These entities secure either refundable or non-refundable tax credits for eligible expenses that can then be claimed with their yearly tax submissions.

SR&ED claimants can receive refunds ranging from a few thousand to several million dollars, depending on how much they spend on eligible expenditures. This SR&ED program has been instrumental in nurturing innovation domestically, forming a cornerstone of the national innovation agenda.

An SR&ED calculator can offer an estimate of the expected refund for your qualified expenses.

SR&ED Financing

Before addressing the misconceptions, it's essential to understand what SR&ED financing entails. This section focuses on non-dilutive options, like those provided by Easly, a premier SR&ED financer that has extended over $300 million in funds to hundreds of innovative Canadian firms.

Easly specializes in financing based on accrual throughout a company's fiscal year. Firms can apply for an Easly Advance against the SR&ED credits they've earned the right to claim through eligible expenditures, turning a distant receivable on their balance sheet into cash in their bank account. This model affords businesses continual access to capital as they continue to spend on eligible expenditures.

For detailed insights into Easly's SR&ED financing, get in touch with their specialists.

Correcting Misconceptions

The most effective way to separate fact from fiction is to show proof. As we address misconceptions, we'll show real-world examples that highlight the truth of the matter.

Fiction: SR&ED financing is a last resort.

• Fact: Far from being an act of desperation, SR&ED financing is a strategic option for managing cash flow. Easly Advances have supported a variety of business strategies, including global expansion and talent acquisition, showcasing its role in proactive financial management.

• Example: "Easly Advances are a beautiful token to have in your back pocket. They can really take a lot of stress off the founders and executive team when the know they have access to cash flow to bridge gaps." - Chris Cassin, CEO, Zero Point Cryogenics.

Fiction: SR&ED financing is overly complex and time-consuming.

• Fact: The perception of SR&ED financing as a cumbersome and slow process is outdated. Easly has streamlined this process with its online application, ensuring a straightforward application and rapid fund deployment.

• Example: "Easly gives us financial options at a rate and frequency that small technology companies absolutely need. I appreciate the online process a lot - being able to just upload financial documents is really convenient." - Dominique Kwong, COO & Co-Founder, Damon Motorcycles

Fiction: SR&ED financing requires a personal guarantee.

• Fact: While some financing options might necessitate personal guarantees, Easly's SR&ED advances do not, alleviating concerns that personal assets are on the line.

• Example: "Easly responded quickly to our inquiry and provided valuable information and guidance on their process. There were no hidden costs; the process was transparent and clear." - Nate Kasten, Founder, Grey & Ivy

Fiction: Early-stage or pre-revenue companies don't qualify.

• Fact: Easly supports a broad spectrum of businesses, including early-stage and pre-revenue entities, with the primary requirement being eligibility for refundable SR&ED tax credits of at least $100,000 annually and not owing any arrears to the CRA.

• Example: "Easly's not scared of startups. You can't pick between keeping day-to-day operations going or buying inventory - you need to do both. Easly enabled us to continue operations and set our sights firmly on global markets." - Carlyn Loncaric, Founder & CEO, VodaSafe

Fiction: The terms of the agreement will be onerous.

• Fact: Easly's terms are clear and founder-focused, with transparent agreements designed for easy comprehension, devoid of legal complexities.

• Example: "Working with Easly was a very easy decision for us because of their responsiveness, turnaround time, terms of financing and reasonable cost of capital." - Lennie Ryer, CFO, Reaction Dynamics

Fuel Your Growth with SR&ED Financing

SR&ED financing can be a catalyst for innovation, providing the working capital needed to maintain momentum and reach your goals. Businesses have used this tool to extend operational runways, achieve key milestones, and support strategic initiatives.

Now that we've separated SR&ED financing fact from fiction, you are better positioned to assess the benefits to your business. Easly's experts are on hand to offer guidance, helping your business maximize its potential.