SRED financing is a method that companies use to receive their SRED refunds more quickly.  In a typical arrangement, an SRED financing provider will advance a fraction of a future expected SRED claim to a company in return for part of the claim’s value when it is realized, plus possibly interest fees and/or a service charge.  Why wait until year-end plus 90 or 120 days to get your SRED cheque?! As Popeye’s friend Wimpy says, “I’ll gladly pay you Tuesday for a hamburger today!”

The justification used for SRED financing is that it is “non-dilutive.”  The idea here, I guess, is that getting (some of) your SRED money more quickly means that you won’t have to sell company equity to raise money.  Okay!

SRED financing is the payday loan of company financing methods.  SRED financing is going to McDonald’s on January the 5th for breakfast and dinner after a New Year’s resolution to eat healthy in 2022.  I could go on.

I get it.  Cash is king.  If there is a business factoring accounts receivable, and there is, why shouldn’t people free up some cash by getting 75% of next year’s SRED claim now?  All it costs is a quarter of your claim and possibly some miscellaneous financing and service charges.  People take cash advances on credit cards at 24% interest rates, if I’m not mistaken, do they not?

Who qualifies for SRED financing?

The ideal candidate for these programs is a rapidly growing firm needing cash flow funding.  The firm should have a track record of receiving 100% of a series of annual, growing SRED claims.

The need for SRED financing has grown during the pandemic. Companies, sales, supply chain, staffing and financing operations have been disrupted by covid.  There’s at least a perception that SRED refunds have been delayed as the CRA attempts to cope with its own covid challenges.

What are the downsides of SRED financing besides the cost of service?

Claiming SRED credits is not a zero-risk activity.  There are two guarantees in life: death and taxes.  We can look at SRED as a form of anti-taxes.  This should tell you all you need to know about where SRED is located on a certainty-of-outcome axis.  If you enter into an SRED financing arrangement and your SRED claim that the financing is based on is later denied, there is no good outcome.  The proper way to look at SRED funding is a source of funds incremental to your core business plan.  Possibly look at SRED as a turbocharger.  Your company vehicle will run just fine without turbocharging.  I don’t recommend any scenario where SRED funding is 10W30 oil for your business.

Who provides SRED financing?

Historically, SRED financing has been provided by second-rate SRED consultants.  Unable to compete on claim quality?  Why not spice up your SRED claim preparation service with a “Spend your SRED refund tomorrow!” offer?  Now, there is a relative newcomer to SRED financing who appears to have a lower-cost option.  It also appears that this firm will do SRED financing only without bundling the SRED preparation service.  This is not a recommendation, but the firm is Easly.  We advise against it, but if you are going to explore SRED financing, check out Easly. G6 can also work with Easly preparing your SRED claim. Call us today to find out how.