The InGenuity Group met with the investment company MuckerFi to help our readers gain a greater understanding of the topic of SR&ED factoring.
What is SR&ED Factoring?
It is completely normal for companies to experience cash flow shortfalls, especially when funding SR&ED projects as they typically require more staff, more materials, and more expenses. Period.
Factoring may not be a term you are familiar with, as it is typically replaced by the term ‘financing’. However, financing and factoring are two different things. Financing is defined as:
Financing is the process of providing funds for business activities, making purchases, or investing. Financial institutions, such as banks, are in the business of providing capital to businesses, consumers, and investors to help them achieve their goals.1
While factoring is defined as:
Factoring allows a business to obtain immediate capital or money based on the future income attributed to a particular amount due on an account receivable or a business invoice.2
Simply put, factoring is a type of financing, with a significantly quicker process than alternatives offered through financial institutions such as loans and lines of credit. This quicker funding can be extremely helpful while carrying out SR&ED projects as unexpected snags, and resulting expenses, are common. Typically financing is acquired through financial institutions, such as banks, whereas factoring is obtained through other investment companies. If factoring is something that may benefit your company, seek out those special companies that provide SR&ED factoring, such as MuckerFi.
Who is MuckerFi?
MuckerFi provides factoring, or financing, to promising and exceptional entrepreneurs in Canada and the United States to help launch and scale their new ventures.
Our SR&ED Funding Page discusses MuckerFi’s business and other companies which offer SR&ED financing options.
The Benefits of SR&ED Factoring
More and more companies are realizing that they qualify for, and benefit from the SR&ED program. Factoring your SR&ED may be appropriate as well, and allow you to advance your current (fiscal 2022) – and future (fiscal 2023) – tax credits, bolstering your balance sheet in short order, rather than a couple of months, or a year from now.
Talk to nearly any company’s founder today – those at large enterprises or small, fast-growing or steady state – and managing cash balance will invariably come up as an increasingly important priority, since:
- Equity markets have tightened, extending nearly any capital-raising process by months;
- Credit has never been easy for entrepreneurs in Canada, but a shrinking number of banks will even entertain conversations;
- Increasingly demanding investors (if you have them) are establishing cash thresholds for existing portfolio companies, as well as new companies they’re considering; and
- a slowing CRA refund process, and increasing SR&ED review rate is delaying the receipt of much-needed funds.
MuckerFi can factor up to 95% of your 2022 (or past year’s) claim and at least 60% of your 2023 (or current year’s) forecast claim. Factoring also allows you to secure an attractive interest rate relative to other small business loans, since the cash advance is backed by a payment from the CRA.
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- Investopedia. (June 8, 2023). Financing: What It Means and Why It Matters. Retrieved September 26, 2023, from: https://www.investopedia.com/terms/f/financing.asp#:~:text=Financing%20is%20the%20process%20of,help%20them%20achieve%20their%20goals. ↩
- Investopedia. (March 31, 2022). Factor Definition: Requirements, Benefits, and Example. Retrieved September 26, 2023, from: https://www.investopedia.com/terms/f/factor.asp#:~:text=Factoring%20allows%20a%20business%20to,for%20sales%20made%20on%20credit. ↩