Venbridge latest lender to add SR&ED financing advances to venture debt offerings

Venbridge

Venbridge has struck a new partnership to help Canadian tech companies more quickly receive research and development credits.

The Toronto-based company announced on August 16 that its platform now allows tech firms to access their Scientific Research and Experimental Development (SR&ED) tax creditfs as part of their claim preparation process. The new offering was launched in partnership with tax credit and grant consulting provider Business Improvement Group.

The platform provides loan approvals with a proprietary artificial intelligence-powered assessment system that uses Venbridge’s data vault to evaluate risk.

Canada’s single largest research and development incentive is the SR&ED Tax Credit program, according to BDC.

“This automated approach makes it incredibly simple for anyone to apply for a credit facility within 15 minutes,” Garron Helman, CEO of Venbridge, said in a statement.

Venbridge is a provider of growth loans to Canadian technology companies seeking an alternative to raising dilutive financing.

Canada’s single largest research and development incentive is the SR&ED Tax Credit program, according to the Business Development Bank of Canada (BDC).

Through SR&ED, Canadian companies can earn an investment tax credit of 35 percent on the first $3 million in qualifying expenditures, including salaries, capital, consulting fees and materials. The tax credit stands at 15 percent for amounts above $3 million. For most companies, these credits take the form of a cash refund.

The SR&ED program provides more than $3 billion in tax incentives to over 20,000 claimants annually, making it the single largest federal program that supports business R&D in Canada. The program is administered by the Canada Revenue Agency (CRA).

RELATED: How the CRA is supporting innovation through SR&ED during COVID-19

With its new offering, Venbridge says entrepreneurs can now focus on scaling their companies while banking on quarterly cash instalments to boost their cash flow with no monthly interest, disbursement or withholding fees. The loan adds a small amount to the consulting contingency fee, without diluting equity.

The platform is designed to be used by SR&ED consultants to provide their clients with a full suite of SR&ED consulting and financing.

“Reviews of SR&ED claims can be a significant burden on already overextended tech executives and technical resources,” Leroy Dougherty, a partner, Tax Services, with the consultancy PwC, wrote in an article for BetaKit, addressing the importance of SR&ED to tech firms.

Venbridge is not the only company offering a way to expedite SR&ED credits.

In April, Calgary-based debt and financing advisor OKR Financial launched a $150 million fund aimed to support early-stage technology startups in Canada in accessing funding, loans, and grants. The fund is specifically designed to help companies take advantage of SR&ED tax credits, as well as asset-based lending, government grant financing or equity deals.

And in February, Vancouver-based Boast.ai secured a $100 million credit facility for its own up-front SR&ED loans offering. Other Canadian operators providing advanced funding for SR&ED include: Easly, Finalta Capital, Fundsquire, and CAE Capital.

There’s significant value for companies that can speed up the cumbersome SR&ED credit program.

“As companies perform R&D activities throughout the year, they are accumulating SR&ED tax credits and building up an asset, which can’t be unlocked until tax returns are submitted, the CRA processes it, and the SR&ED refund is received,” as Russ Armstrong, Boast.ai’s vice president of sales & strategy, previously explained to BetaKit.

RELATED: SR&ED claims reduced due to federal COVID-19 assistance

The entire process can take a minimum of nine months from the end of the fiscal year, and more than 16 months from the first month of incurring R&D expenses.

In the spring of 2020, the COVID-19 crisis reportedly delayed nearly $200 million in tax credits for tech companies after the CRA paused business auditing as it moved to remote work. This meant companies not yet audited were ineligible to receive the funds.

At the time, the Canadian Advanced Technology Alliance (CATA) submitted an emergency funding proposal to the federal government, urging the Liberals to immediately release $200 million in backlogged SR&ED claims to support Canada’s tech sector and to create a new fund to speed up the disbursement of capital.

Charles Mandel

Charles Mandel

Charles Mandel's reporting and writing on technology has appeared in Wired.com, Canadian Business, Report on Business Magazine, Canada's National Observer, The Globe and Mail, and the National Post, among many others. He lives off-grid in Nova Scotia.