Scientific Research and Experimental Development (SR&ED) is a program in Canada that encourages businesses to engage in research and development activities by providing tax incentives. The program is administered by the Canada Revenue Agency (CRA) and aims to foster innovation and technological advancements in various industries.
It is available to businesses of all sizes and in all sectors that conduct R&D activities in Canada. In fact, Small and medium-sized enterprises (SMEs) are frequent users of the SR&ED program. The refundable tax credits help them offset the costs of R&D activities.
Read this guide to learn more about:
- SR&ED requirements
- SR&ED eligibility
- New small business loans options
SR&ED Eligibility Criteria and Requirements
The eligibility criteria for SR&ED can be complex. There are some general requirements that businesses need to meet.
OK, let’s go.
So, for starters, the project must be aimed at achieving a scientific or technological advancement. This can include developing new products, improving existing processes, or creating innovative solutions to technical challenges. The project must also involve a systematic investigation or search, which means that it should be planned, documented, and conducted in a methodical manner.
Furthermore, businesses must demonstrate that the project involves technological uncertainty. What does that mean? In a nutshell, it means that there is a lack of knowledge or information on how to achieve the desired outcome and that the project requires experimentation or analysis to overcome this uncertainty.
The work must also be carried out by qualified personnel. It’s a good idea to carry supporting documentation, including project plans, progress reports, and technical records.
SR&ED vs SRED Loan
Some people get confused when they see SRED loans instead of SR&ED loans. But they both mean the same thing. It’s actually common for people to drop the ampersand when referring to SR&ED, as such SRED is one and the same.
SR&ED Eligible Expenses
Not all expenses are eligible for SR&ED. Qualifying expenses can include salaries, wages, and subcontractor costs directly related to the SR&ED work. They can also include materials, equipment, and overhead costs used in the project.
Of course, there are caveats.
For example, overhead costs may be eligible for SR&ED only if they are directly attributable to the SR&ED work and have a reasonable basis of allocation. Similarly, subcontractor costs may be eligible if the subcontractors themselves are eligible for SR&ED.
Support Work Categories
Some eligible support work may be eligible for SR&ED. It must match the needs and directly support the core work. In other words, it must correspond to the amount, size, extent, or duration that is needed to carry out the SR&ED work.
In addition, support work should be from one of the following categories:
- Engineering
- Design
- Operations research
- Mathematical analysis
- Computer programming
- Data collection
- Testing
- Psychological research
Why Apply for SR&ED with Levr.ai
The SR&ED application process can undoubtedly be complex. It requires detailed documentation. As mentioned, the eligibility requirements are strict. This is where we enter the picture.
At Levr.ai, we help hundreds of startups and small businesses secure SERD financing, and the program is fantastic for these business segments who might be left with fewer available financial loan products due to the newness or lack of profitability due to being in the early stages of research and development.
Examples of Major Canadian Companies that used SR&ED
What to Do When You Don’t Qualify for SR&ED
There’s no doubt that SR&ED can fuel growth. The tax credits, deductions, and refunds can certainly help offset costs unlock resources. Businesses can reinvest these resources to grow and expand.
However, not all businesses qualify for the program.
Fortunately, there are plenty of other options for small businesses through Levr.ai.
Term Loans
Does your business have a specific project or investment in mind that requires a substantial amount of capital upfront?
Well, a term loan for businesses can be a good option. These loans are typically repaid over a fixed term, with regular installments that include both principal and interest.
The loan amount, interest rate, and repayment terms will vary based on your business’s financial health and creditworthiness.
MCA (Merchant Cash Advance)
Is your business having trouble qualifying for conventional loans but boasts healthy sales figures? Well, a Merchant Cash Advance (MCA) is a solid financing option that provides businesses with a lump sum of cash in exchange for a percentage of their future sales. MCA is especially suitable for businesses that have a high volume of credit card sales but may not qualify for traditional bank loans due to limited credit history or poor credit scores. The repayment terms for MCA are usually flexible, too.
AR Financing
Accounts Receivable (AR) financing, simply known as AR financing or invoice factoring, allows businesses to access funds by using their outstanding invoices as collateral. Instead of waiting for customers to pay their invoices, businesses can sell these invoices to a lender at a discount.
Venture Debt
Venture debt financing is a type of financing that combines elements of debt and equity. It is primarily targeted at high-growth startups and companies that have already raised significant equity funding.
Can my Business Qualify for a CEBA Loan?
The Canada Emergency Business Account (CEBA) was a federal loan program introduced in response to the COVID-19 pandemic. It provided interest-free loans of up to $60,000 to small businesses that have experienced financial hardship due to the pandemic. However, the program has ended, and you can no longer apply for CEBA loans.
In fact, businesses that took out the loan are focusing on repaying it. According to the Canadian government, the forgiveness repayment date has been extended to January 18, 2024. If the loan remains outstanding on January 19, 2024, it will convert to a non-amortizing term loan with full principal repayment due on December 31, 2026.
Navigating SR&ED Eligibility and Requirements
SR&ED can provide significant benefits to businesses engaged in research and development activities. However, understanding the eligibility criteria and requirements is essential to ensure that your business qualifies for the program.
If your business does not qualify for SR&ED, you can apply for a small business loan on Levr.ai. Our intelligent loans platform is designed to match businesses with loan options that match their needs.
