Discover the common myths about SR&ED financing and how you fund your business' growth with ventureLAB Partner, Easly.
SR&ED financing is a specialized funding source for Canadian businesses, gaining popularity among startups and scaleups nationwide. It's a form of tax credit financing that provides accelerated cash flow backed by earned tax credits. Though its adoption as a strategic funding source is growing, there are still many companies that aren't familiar with the concept or have misconceptions about how it works. In this article, we will bust some common myths about SR&ED financing so you can make informed decisions about how you fund your business' growth.
SR&ED 101
Most Canadian companies conducting R&D work will be familiar with the SR&ED (Scientific Research and Experimental Development) tax credit program. The SR&ED tax credit program is the largest single source of government funding for companies conducting R&D in Canada, providing over $3B in tax credits annually to approximately 20,000 claimants. These businesses receive refundable or non-refundable tax credits that can be claimed with their annual tax filing.
Companies that successfully claim refundable SR&ED tax credits are awarded a reimbursement on a large portion of their eligible expenses. The program is offered federally, and most provinces and territories provide an additional tax credit on top of the federal portion (if you want to understand more about the regional differences, check out this blog post).
Successful claimants can receive SR&ED refunds ranging from tens of thousands to millions of dollars, depending on how much they spend. The program has fostered domestic innovation for decades and is a pillar of Canada's innovation strategy.
Pro tip: You can use an SR&ED calculator to get a good idea of the refund you can expect on your eligible expenditures.
Understanding SR&ED Financing
Before diving into SR&ED financing myths, let's outline what SR&ED financing entails. Different companies may offer different forms of SR&ED financing. For this article, we will focus on non-dilutive SR&ED financing, such as that offered by Easly, a leading SR&ED financing provider that, at the time of publishing, has deployed over $175 million in financing to hundreds of innovative Canadian companies.
Easly's approach is to provide financing on earned SR&ED credits to date at any point during a company's fiscal year. For example, a company can approach Easly at the end of Q1 and request an Easly Advance on the SR&ED credits they've earned to date. After a short application and underwriting process, a successful applicant will receive funds in their bank account within 48 hours. Then, at the end of Q2, the company can approach Easly again and request another Easly Advance on the additional SR&ED credits they earned in Q2, and so on. As you can see, this approach provides companies with a consistent flow of capital when it suits their needs rather than waiting for a lump-sum refund from the CRA.
If you'd like to know more about Easly's SR&ED financing, reach out to their experts here.
Now that you have an understanding of what SR&ED financing is let's start busting those myths!
Demystifying Common Misconceptions
The proof is in the pudding, as they say. The best way to bust a myth is to give a real-world example that contradicts it. We'll accompany each of these myths with a testimonial from one of Easly's customers that addresses the claim made by the myth.
Myth 1: SR&ED financing is a last resort
- Reality: SR&ED financing is not a last resort; it's a strategic tool for growth. Companies have used Easly Advances for various purposes, from international expansion to hiring top talent. It’s about smart cash flow management, not financial distress.
- Proof: "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.
Myth 2: SR&ED financing involves a complicated process and long waits
- Reality: The notion that obtaining SR&ED financing is a drawn-out and complex process is outdated. Easly streamlines the process, with a simple application and funding deployed in as little as two weeks.
- Proof: "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, former COO & Co-Founder, Damon Motorcycles
Myth 3: Personal guarantees are required
- Reality: Some specialty financing options require founders to sign personal guarantees, putting their personal assets on the line. Easly does not require personal guarantees for SR&ED loans, which is a significant relief for entrepreneurs who do not want to risk personal assets. This approach aligns with Easly's founder-friendly philosophy.
- Proof: "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
Myth 4: My company won't qualify for SR&ED financing because we're too early stage or pre-revenue
- Reality: Contrary to this belief, Easly finances a wide range of companies, including startups and pre-revenue firms. The key criteria are conducting work eligible for refundable SR&ED tax credits, having a minimum annual refund amount of $100K, and not owing debt to CRA.
- Proof: "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
Myth 5: The terms for SR&ED advances are burdensome
- Reality: Easly's terms are straightforward; they are written for founders, not lawyers. The standardized loan agreements are transparent and clear, empowering founders with clarity.
- Proof: "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, former CFO, Reaction Dynamics
Leveraging SR&ED Financing for Growth
SR&ED financing is not just about surviving; it's about thriving. Businesses have utilized these funds to extend their runway, meet critical milestones, and even help facilitate mergers. Now that we've busted some of the common myths associated with SR&ED financing, you can make informed decisions on how to utilize it for your company best.
For those looking to explore SR&ED financing further, reach out to the experts at Easly, who can provide tailored advice to ensure that your business makes the most of your credits. Understanding and leveraging tools like SR&ED financing can be a game-changer for your business.
About Easly
Turn your earned SR&ED credits from a distant receivable to cash in your bank account with Easly Advances. Easly's founder-friendly financing provides Canadian companies with non-dilutive working capital in a fast, flexible and streamlined way. No application fees, no monthly servicing, and no personal guarantees required. Connect with Easly's financing experts to learn more.
About ventureLAB
ventureLAB is a leading global founder community for hardware technology and enterprise software companies in Canada. Located at the heart of Ontario’s innovation corridor in York Region, ventureLAB is part of one of the biggest and most diverse tech communities in Canada. Our initiatives focused on raising capital, talent retention, commercializing technology and IP, and customer acquisition have enabled thousands of companies to create over 5,000 jobs and raise more than $350 million in investment capital. At ventureLAB, we grow globally competitive tech titans that build-to-scale in Canada, for global markets.
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