Small to medium technology companies in Canada can now generate quick cash flow from their Scientific Research and Experimental Development (SR&ED or SRED) tax incentive program claims through Espresso Capital’s SREDLine or SREDLoan offerings.
With this unique lending program, which was created by Espresso Capital, immediate value can be unlocked from the federal tax credit program. The SR&ED program has become one of the main financing vehicles for innovative and growing Canadian science and technology companies, particularly small to medium firms as well as those in the start-up phase. The program provides cash refunds or tax credits for up to 68 percent of the labour costs that are incurred by a company for innovative research and development.
Most growing technology companies in Canada have used SR&ED to create extra and important operating financing for their businesses. However, the tax refund can take some time to arrive. As a result, many companies find that they require the funds for cash flow purposes long before those funds are received from the Canada Revenue Agency (CRA). This creates a financing gap for those who make innovation a core part of their business strategy.
There is a solution to this problem. The SR&ED tax credit claim is an asset like any other item on a company’s balance sheet, even before it has been approved by CRA. To access this asset, a short-term financing vehicle called SRED financing, or SRED factoring, has been developed. SRED financing releases the value of the SR&ED tax credit through lending or factoring based on the approved credit amount. Unfortunately, most financing institutions do not have the understanding or capacity to put a hard value on this underlying asset. So it is difficult for them to create financial products around them.
Fortunately, Espresso Capital has the capacity to put a value on this asset, and has created a financial lending product to leverage it as working capital. This cash can be used for a variety of reasons, such as:
- Bridging sales receivables from a purchase order
- Unlocking a company milestone that will drive (or avoid) financing
- Bridging working capital to a merger or acquisition event
To help you understand further, please read: Why borrow against your SR&ED claim?