While the Scientific Research & Experimental Development (SR&ED) Tax Credit Program has been a general catalyst for R&D across the country and across various industries, its role is particularly transformative for the cleantech sector.
While incredibly valuable, the annual nature of SR&ED refunds often clashes with the immediate financial needs of these innovation-driven enterprises. This is where SR&ED financing becomes a strategic cash management solution.
The SR&ED Program
The SR&ED program is designed to incentivize Canadian companies to conduct research and development within the country. With an annual disbursement of over $3 billion in tax credits, nearly half of which are refundable, the program is a boon for companies, especially those in the cleantech sector, where innovations in sustainable energy, carbon utilization and sequestration, and other environmental solutions require delving into scientific and technological uncertainties to find solutions.
These endeavours align with the mandate of the SR&ED program, which is to push Canadian innovation forward through uncertainty by alleviating some of the cash flow pressures that come with R&D.
Is your company conducting SR&ED-eligible work? Use an SR&ED calculator to get an estimate of your expected refund amount.
The Imperative of SR&ED Financing in Cleantech
Cleantech companies are at the vanguard of creating sustainable solutions for energy, waste, and more. However, the path to commercializing these solutions often requires substantial R&D investments. SR&ED financing allows these companies to convert their earned tax credits into immediate cash rather than wait for an annual lump-sum refund, thereby accelerating their sustainable initiatives and reducing time-to-market.
A Practical Example: SR&ED Financing in Action
Consider a cleantech company in British Columbia focused on the development and commercialization of carbon capture technology. For its pool of expenditures that are eligible for refundable credits, the company earns a 35 per cent federal and a 10 per cent provincial refundable tax credit. If the company does not use SR&ED financing, its SR&ED tax credit accrual and cash flow would look like this:
*To simplify the visualization, this example assumes the company spends on SR&ED eligible expenditures evenly throughout the year.
By using SR&ED financing, the company can receive advances on 75 per cent of its earned tax credits on a timeline that suits its needs, thereby aligning its funding with operational needs and accelerating its contribution to Canada's cleantech sector.
*This example assumes the company takes an advance at the end of every quarter and that the advances have a two per cent disbursement fee and 14 per cent annual interest rate.
SR&ED Financing Providers: Key Features to Look For
When selecting an SR&ED financing provider, there are a few key features that should be prioritized:
- No Application Fees: Your company shouldn't need to pay to apply for SR&ED financing. If you earn refundable SR&ED tax credits, applying to advance them shouldn't cost you money.
- Transparent Terms: Complexity is the last thing you need when you're focused on securing funds to support innovation. Look for terms that are clear and simple to understand.
- Quick Turnaround: You've found a provider with a free application and simple terms - now the question is, how quickly can you access funds? An experienced SR&ED financing provider should be able to turn around applications quickly and get you funded within two weeks.
- Founder-Focused: Supporting innovation starts with supporting innovators. Your SR&ED financing provider should have terms that reflect that, such as no requirement for personal guarantees.
For Canada's cleantech sector, SR&ED financing is more than just an alternative funding source; it's a strategic financial tool that can significantly accelerate the pace of innovation. By leveraging SR&ED financing, clean tech companies can not only manage their cash flow more effectively but also contribute more robustly to Canada's sustainable future.
For more information on how SR&ED financing can turbocharge your cleantech initiatives, connect with the experts at Easly.
Easly supports innovation across Canada by providing non-dilutive capital to companies that earn refundable investment tax credits, such as those awarded through the Scientific Research & Experimental Development Program (SR&ED). We enable our customers to control their funding timeline, turning their annual lump-sum refund from a distant receivable into cash in their bank account.