Why SR&ED Financing is the Way to Fund Product Development

By Garron Helman

It’s hard to have a conversation with an entrepreneur without the words “funding”, “cash runway”, or “ DevOps” coming up. It’s always a race for companies to develop new products, add new features, and stay ahead of the curve when it comes to solving customers’ problems. Being a founder doesn’t only require being innovative and agile, but it also often requires a mastery of budgeting. Figuring out where to find the money to pay for everything you want to do is no easy feat, but there are innovative and strategic ways to finance your growth.  

When you’re running a SaaS company, you want to keep your customers happy and to onboard more and more. To get there, you may need to build some new, key features that your customers have asked for or that you must have to compete effectively in the market. Developing new features means hiring extra developers or engineers. And you need to find a way to pay them. 

A great deal of startups are funded by venture capital. With an ever-growing private capital market, venture capital is definitely the most celebrated form of funding, but there are other, efficient funding options when the time is not right to hit up the VCs.

When you choose to raise equity, you cash in today to fund the work that will grow your customer base tomorrow. This means a smaller return on your own investment in the long run. Many founders are now looking beyond the glamour of raising venture capital and into other practical funding sources.

The US venture debt market has grown fivefold since 2010, a higher growth rate than the private equity market. And for good reason. Venture debt is generally more cost-effective than equity in the long run. Keeping equity of early-stage companies is key for founders who want to stay in charge of their businesses and get a bigger payout when it’s time for an exit.

An equity round takes between six and nine months of introductions, meetings, pitches, and negotiations. Venture debt on the other hand takes days and requires less involvement from borrowers than venture capital. This provides you with the time and headspace you need to hit your scaling goals and build a great business instead of spending your time trying to convince investors of how great your business is.

Fortunately for founders in Canada, there’s a system that rewards innovation; SR&ED. As more of your developers and engineers work on building and improving features, you’re building up your SR&ED claim as an asset which you can unlock immediately with SR&ED financing.

Instead of waiting for your fiscal year-end, claiming SR&ED and waiting months for the CRA to review your claim and issue a refund, you can choose to finance your claim from day 1 with Business Improvement Group. This gives you the opportunity to receive quarterly, interest-free cash disbursements that get repaid when your claim is eventually processed. 

This form of venture debt is a great solution for many companies that need to improve their cash flow and reinvest their capital quickly to stay ahead of the curve.

There is another great benefit that comes with SR&ED financing; freedom. There are very few covenants to a SR&ED credit facility, meaning you can choose where to spend the money to maximize growth. Whether you choose to pay salaries, hire new salespeople, invest in marketing, or improve your product strategy, a lender will not get involved as long as you’re compliant with the loan agreement

About Garron Helman

Garron helps company founders grow their businesses by providing non-dilutive financing to hundreds of great Canadian startups. Garron is a recognized leader in SR&ED identification with expert knowledge in tax credit programs in Canada.

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