Government Grants: Creating a Sustainable Strategy for your Business

Founders should choose a non-dilutive funding partner that acts as a strategic ally, integrating Scientific Research & Experimental Development (SR&ED) and grants to maximize cash flow while minimizing administrative burden and audit risk.

Why your choice of funding partner determines your runway

A strategic partner actively models cash flow to ensure capital arrives exactly when needed to bridge equity rounds. This decision is a capital strategy lever, not a mere compliance exercise. In the tight capital markets of 2026, the difference between a reactive filing service and a strategic partner is measured in months of operational survival. A partner who understands this dynamic treats your claim as an investment in your cap table, identifying every eligible project to ensure you do not leave "free" money on the table that could otherwise delay your next priced round.

Equity is the most expensive capital you will ever take, making non-dilutive funding the most efficient way to fuel growth. Every dollar secured through tax credits or grants is a dollar of equity you do not have to sell to investors. However, navigating the landscape of SR&ED, the National Research Council's Industrial Research Assistance Program (IRAP), and the thousands of other targeted grants requires sophisticated coordination.

A partner lacking a holistic view may secure a small win in one area that causes a significant loss in another due to program dependencies. You need a partner who sees the entire chessboard, orchestrating applications to ensure compliance across all funding bodies.

Audit risk is a reality that can turn a projected cash injection into a significant liability if managed poorly. A vendor who prioritizes speed over technical rigor leaves you exposed to Canada Revenue Agency (CRA) reviews without adequate defence. If a claim is denied or reduced significantly upon review, the financial shock can be destabilizing. The right choice is a partner who prepares for an audit from day one, building a fortress of evidence around your claim so that if a review occurs, it is a manageable administrative step rather than an existential threat.

Next step: Evaluate your current or prospective partner not just on their fee, but on their ability to act as a strategic extension of your finance team. Book time with us to explore!

Understanding the four pillars of non-dilutive funding

Effective funding strategies rely on the four pillars of: Tax Credits, Grants, Wage Subsidies, and Government Loans, which must be stacked to maximize returns. Tax credits, primarily SR&ED, are the bedrock of Canadian innovation funding for work already completed. Grants, such as those provided by NRC IRAP, are generally forward-looking and project-specific. Wage subsidies help offset hiring costs, while government loans offer favourable repayment terms. The best financial outcomes come from "stacking" these programs to cover different aspects of your operational costs, ensuring you maximize the total subsidy rate on your R&D activities.

You must navigate the "net benefit" trap, where public funding reduces the pool of expenses eligible for tax credits. When you receive a grant, it is legally classified by the CRA as assistance, which lowers your cost base for SR&ED claims. The assistance and contract payments policy  explicitly states that qualified SR&ED expenditures are reduced by any amounts of government or non-government assistance. However, it is important to distinguish this from bona fide government loans, which typically do not reduce your claimable expenditures if they are fully repayable. A strategic partner runs the math beforehand to ensure the grant is worth the reduction in your eventual tax credit.

Timing matters immensely because grants are often proactive while SR&ED is retroactive. To be eligible for most grants, you must apply and receive approval before you incur the expense. Conversely, SR&ED is claimed after the fiscal year ends, based on work conducted for the  advancement of scientific knowledge  or technological advancement within Canada. A competent partner manages these conflicting timelines, ensuring you apply for grants early in your project lifecycle while simultaneously gathering the data needed for your year-end tax credit filing.

Next step: Learn more about our funding strategy to see how we stack these pillars.

Criteria 1: Fee structure and incentive alignment

You should prioritize success-based fee models for tax credits while ensuring fixed fees are used for restricted programs to maintain compliance. The market generally offers two main pricing structures: contingency fees (a percentage of the funding recovered) and fixed or hourly fees. For tax credits such as SR&ED, a contingency fee structure aligns the partner’s incentive with your success. In this model, the partner is motivated to identify every legitimate area of uncertainty because their revenue is directly tied to the size of your approved claim. They effectively become a stakeholder in your refund.

However, specific government programs strictly forbid contingency fees. Programs such as the Strategic Innovation Fund (SIF) and IRAP have regulations preventing consultants from charging a percentage of the win. Firms may not pay consultant lobbyists a commission or contingency fee that depends on the execution of a contribution agreement for these programs. A compliant partner will be transparent about this and offer a fixed-fee structure for these specific scopes of work, keeping you on the right side of the law.

Avoid lock-in by being wary of vendors who demand long-term contracts without performance guarantees. Some firms may attempt to lock you into multi-year agreements that are difficult to break, even if their service quality declines. You should look for flexibility and transparency. Your partner should clearly explain which fees apply to which program and why. If they are charging a contingency for SR&ED and a fixed fee for grant writing, the invoice mechanics should be distinct and understandable.

Criteria 2: Technical expertise and audit defence

You must ensure your partner employs Ph.D's, engineers or scientists because SR&ED claims are fundamentally technical arguments regarding uncertainty. While the final submission includes financial forms, the core of the claim is the technical narrative. Accountants rarely possess the domain knowledge to articulate why a specific software architecture challenge constituted a technological advancement. A strong partner demonstrates the following capabilities:

• Subject Matter Experts: They employ technical experts who can speak the same language as your engineering team, ensuring the "uncertainty" argument is robust enough to withstand scrutiny.

• Ex-CRA Insight: They have personnel on staff who understand the reviewer’s perspective and can preemptively address red flags. The most effective defense is writing the claim with the reviewer in mind, using language that satisfies CRA requirements.

• Proactive Systems: They help you implement systems to capture documentation as the work happens. The CRA’s guide on SR&ED expenditures emphasizes that contemporaneous documentation that is dated, signed, and specific is the best supporting evidence.

CRA reviewers expect specific evidence conveying what work was done, who was involved, and how expenditures were determined. It is not enough to simply claim that R&D took place; you must prove the nexus between the cost and the activity. As outlined in the  technical review guide , reviewers will ask to see information conveying exactly how you determined the expenditures. A partner who understands this will ensure your timesheets and project logs, such as those from Jira or GitHub, are linked to the specific technical uncertainties described in your claim.

Next step: Read about our proactive documentation strategies to understand how we reduce audit anxiety.

Criteria 3: The integrated partner vs. the siloed specialist

An integrated partner is superior to a siloed specialist because they ensure consistent project descriptions across grants and tax credits, preventing compliance conflicts. Using separate providers for grants and tax credits often leads to missed "stacking" opportunities or contradictory narratives. You might have a grant writer describing a project as "market-ready" to secure commercialization funding, while your SR&ED consultant describes the same project as "highly uncertain" to secure tax credits. This contradiction can be disastrous during an audit. An integrated partner ensures that the narrative is consistent across all government touchpoints.

An integrated partner also runs the math to ensure a grant is worth the effort after accounting for the reduction in your SR&ED claim. Not all government funding results in a net positive. If a grant requires significant reporting overhead and reduces your SR&ED claim dollar-for-dollar, it might result in a net loss of resources. Only a partner who manages both calculations can provide an honest assessment of the net benefit, advising you to sometimes walk away from funding that hurts your bottom line.

Consolidating vendors also provides a single point of truth for all non-dilutive funding. Founders and CFOs are time-poor. Managing multiple vendor relationships and coordinating data transfers is a distraction. An integrated partner acts as a central hub, requiring you to explain your roadmap only once. They then deploy that knowledge across various programs, saving you hours of meetings.

Next step: Ask your potential partner how they cross-reference project descriptions between grant applications and tax credit filings.

Comparing the vendor landscape

Founders must navigate four distinct vendor categories: The Big 4, Automated Platforms, Grant Boutiques, and Strategic Partners. Each have different fee structures and technical depths. Choosing the right category of vendor is just as important as choosing the specific firm.

The Big 4 accounting firms offer safety in brand name but are often expensive and may treat startups as low-priority files. Their focus is primarily on accounting compliance rather than maximizing the technical scope of your claim. Automated platforms have gained popularity, but their software-first approach often misses the nuanced "uncertainty" arguments required for a defensible claim. These tools cannot interview your engineers to uncover the latent R&D in a failed project or articulate complex technological hurdles.

Grant boutiques can be effective at writing compelling narratives, but they often operate with a blind spot regarding tax implications. They may win you a grant that effectively reduces your larger SR&ED refund because they do not calculate the interaction between government funding and tax credits.

Zero To One Strategic falls into the fourth category of strategic partner, and we offer the distinct advantage by being built by founders for founders. We combine the technical rigour of engineering experts with the financial strategy of a CFO and the grit of an entrepreneurial approach.

A due diligence checklist for founders

We suggest that you vet potential partners with these critical questions before signing an engagement letter to ensure they can deliver on their promises.

• Who writes the technical narrative? Ensure it is a domain expert, such as a software engineer or scientist, not a generalist copywriter. The success of your claim hinges on the technical accuracy of the "uncertainty" argument.

• How do you handle grant programs vs. SR&ED interaction? Look for a clear methodology on how they stack programs without compliance breaches. If they cannot explain the "net benefit" calculation, they likely lack the integrated expertise you need.

• What is your audit defence policy? Confirm if they defend the claim as part of their success fee or if they charge hourly for reviews. A partner confident in their work should stand behind it without extra charges.

• Do you have ex-CRA staff? This is a critical indicator of their ability to assess risk accurately. Internal team members who know how the CRA thinks provide an invaluable layer of quality assurance.

• Can you provide industry references? Ask for examples of success in your specific sector, such as biotech or SaaS. A generalist success story is less relevant than knowing they have successfully defended claims involving technologies similar to yours.

Next step: Browse our case studies to see our track record in your industry.

FAQs

Common questions regarding funding partners focus on fee structures, audit risks, and software limitations.

Q: Can I pay a percentage fee for all government grants?

A: No. While contingency fees are common and compliant for SR&ED and some grant programs, others such as IRAP and SIF strictly prohibit contingency fees. A reputable partner will be transparent about this and structure a compliant fixed fee for those specific applications.

Q: Does hiring a big accounting firm guarantee I won't be audited?

A: No. Audit risk is somewhat randomized and therefore impossible to predict. Your success when audited will depend on the technical merit of your project and the quality of your contemporaneous documentation, not the letterhead of your consultant. The CRA reviews the science, not the brand name of the preparer. Sometimes excellent claims are audited and in those cases, they should pass with flying colours.

Q: Why can't I just use software to file my SR&ED?

A: Software is excellent for calculation and form-filling, but it cannot construct the subjective "technological uncertainty" arguments required to defend a claim against a CRA reviewer. A human expert is needed to interview engineers and frame the narrative defensibly.

Q: When should I engage a funding partner?

A: Ideally, you should engage a partner before your fiscal year-end or before starting major R&D projects. This allows for proactive eligibility scoping and ensures that documentation systems are set up correctly from the start.

Ready to explore your options?  Request a discovery call  with our team.

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Moving from an annual refund model to quarterly advances transforms Scientific Research & Experimental Development (SR&ED) tax credits from a passive year-end bonus into predictable operating capital. For high-burn startups and scale-ups, treating these credits as an accrued asset allows for the smoothing of cash flow and the extension of runway without increasing administrative burden or dilution.

In the technology ecosystem of 2026, capital efficiency is the primary indicator of viability. Founders can no longer afford to let capital sit in a government receivable account for over a year. By shifting the perspective of SR&ED from a retrospective tax filing to a proactive financing instrument, often called SR&ED factoring, companies gain the liquidity needed to execute their roadmaps today.

However, accessing this capital requires a fundamental operational shift. It demands moving away from the "shoebox method" of year-end accounting toward a disciplined, real-time accrual model. This article explores how to execute that shift, the mechanics of quarterly advances, and how to build a compliance framework that withstands Canada Revenue Agency (CRA) scrutiny.

The shift from retrospective to real-time funding

Quarterly advanced refunds allow companies to access their accrued tax credits throughout the fiscal year rather than waiting for a single lump sum after tax filing.

Transitioning to this model requires a shift from reactive, year-end filing to proactive, defensible compliance. In the traditional retrospective model, companies view the tax credit as a distant reimbursement. This often leads to lax record-keeping throughout the year, followed by a frantic attempt to reconstruct technical narratives months after the work was completed.

The quarterly advance model fundamentally changes this dynamic. Instead of viewing SR&ED as a "bonus," companies view it as a high-quality receivable that can be financed immediately. By validating eligible R&D spend as it happens, you unlock liquidity to reinvest in your team. This creates a compounding effect: money spent in Q1 generates a receivable that is financed in Q2, providing fresh capital to fund further R&D in Q3. This operational discipline not only facilitates financing but also results in a cleaner, more robust year-end tax filing, reducing the overall risk profile of the organization.

The cash flow gap: annual vs. quarterly funding

The cash flow gap created by the 12 to 18-month delay between expenditure and refund makes regular R&D advances statistically superior to annual lump sums for firms managing high monthly burn rates.

Consider the timeline of a standard SR&ED claim without financing. A company with a December 31st fiscal year-end incurs R&D expenditures in January. They typically file their corporate tax return the following June. Even with expedited processing, the capital disbursement may not arrive until August or September. This creates a cash flow gap where nearly two years of R&D expenses are essentially unfunded. For a pre-revenue or scaling company, this gap is a "valley of death" that often necessitates reliance on expensive venture debt or highly dilutive equity rounds.

Interim financing, or SR&ED factoring, solves this by providing liquidity against the estimated tax credit value every quarter. Lenders typically advance 75% to 80% of the accrued value. This smoothing effect turns a lumpy annual windfall into a reliable stream of working capital. Instead of a massive spike in cash once a year, which is often difficult to deploy efficiently, you receive steady injections of capital that match your payroll obligations.

In 2026, where the cost of talent remains high, the ability to hire an engineer in March using the tax credits generated in January and February is a significant competitive advantage. It allows the finance function to support the technical roadmap proactively rather than restrictively.

For more on how to structure your capital stack and integrate these advances into a broader strategy, explore our approach to  non-dilutive funding services .

The accrual model: verifying R&D spend in real-time

The accrual model necessitates a monthly or quarterly identification of eligible work because you cannot finance a claim that you cannot prove exists.

To secure quarterly advances, you must demonstrate to lenders that your R&D work is eligible and your expenses are verifiable. Lenders are risk-averse; they need assurance that the "asset" they are lending against is real. Engineering leads must log technical uncertainties, hypotheses, and advancements as they happen. This contemporaneous documentation provides the "borrowing base" that lenders require to release funds.

This shift imposes a requirement for "audit-readiness" at all times. In a quarterly model, your technical descriptions and financial allocations are reviewed four times a year rather than once. While this sounds like an increased administrative burden, it distributes the workload. Instead of a year-end scramble, the data is captured incrementally. This ensures that details regarding failed experiments, often the strongest evidence of SR&ED, are preserved.

Furthermore, this discipline ensures that when the T661 form is finally submitted to the CRA, it is backed by robust evidence. As noted in CRA policy, claimants must have met the  filing requirements for SR&ED  before an investment tax credit (ITC) can be earned. Building this documentation in real-time is the only way to ensure your claim remains defensible. If a lender advances funds and the CRA later denies the claim due to lack of evidence, the company is left with a significant debt obligation.

Strategic benefits: extending runway without dilution

Leveraging SR&ED advances acts as a tool for equity preservation by allowing founders to grow on their own terms without pricing a new round prematurely.

Every dollar of non-dilutive capital you access delays the need for a priced equity round. In the early stages of a company, valuation can fluctuate significantly based on milestones achieved. By using quarterly SR&ED financing to cover 30-40% of your engineering payroll, you effectively lower your net burn rate. This allows you to stretch your existing cash runway by several months or even quarters. Those extra months allow you to achieve further commercial milestones, such as a product launch or a revenue target, potentially increasing your valuation before taking on dilution.

While SR&ED financing carries an interest cost, it is often cheaper than the cost of equity. Giving up 10% of your company for a seed round is substantially more costly in the long run than paying interest on a loan secured by a government receivable. Furthermore, the interest paid on these loans is generally a deductible business expense, further lowering the effective cost of capital.

It is also important to distinguish between "government funding" and "bona fide loans." Under the CRA's policies on assistance and contract payments , bona fide commercial loans with reasonable repayment terms generally do not grind down the value of your SR&ED claim. This is a crucial technical distinction. Conversely, grant funding reduces your pool of eligible expenditures, thereby reducing your tax credit. A properly structured commercial loan or factoring arrangement does not. This means you can leverage your tax credits to generate cash flow without reducing the total credit amount you are entitled to.

Adopting an integrated partner approach, where your claim preparation and funding strategy are aligned, ensures you maximize this benefit without compliance friction. A partner who understands both the tax implications and the lending criteria can structure the narrative to satisfy both the lender's risk committee and the CRA's technical reviewers.

Review our SR&ED case studies  to see how other companies have used this leverage to extend their runway.

The SR&ED financing landscape: who offers quarterly advances?

Providers of SR&ED factoring and accrued loans generally fall into three categories: traditional banks, specialized fintech lenders, and integrated tech-lenders.

Navigating the market for "SR&ED factoring" requires understanding the trade-offs between cost, speed, and risk. The ecosystem in Canada has matured significantly, offering founders multiple avenues to access their accrued capital.

Traditional banks

Major financial institutions often offer SR&ED financing through specialized technology groups. These options typically have the lowest cost of capital because banks have the lowest cost of funds. However, they are generally the most difficult to access. Banks often require a full banking relationship, strict covenants, personal guarantees, and a longer approval process. They view SR&ED lending as part of a broader credit facility, which means if your general financial health dips, your access to SR&ED capital might be restricted.

Specialized fintech lenders

Specialized private lenders, focus specifically on SR&ED advances. They are generally faster and more flexible than banks, often approving funding within days. They understand the nuances of the SR&ED program and are comfortable lending against the asset without requiring you to move your primary operating accounts. However, they typically act solely as lenders. This means the burden of proving eligibility and managing the CRA claim remains entirely on you. If your claim preparation is weak, they may lend you money that you ultimately cannot claim, creating a liability risk.

Integrated tech-lenders

Integrated tech-lenders combine software automation with financing. While this "all-in-one" approach promises convenience, it introduces a potential conflict of interest and risk. Relying on automated scraping for eligibility often overlooks the nuanced technical uncertainties that form the core of a maximized claim. Software is excellent at aggregation but poor at argumentation. If an automated platform overclaims to justify a larger loan, you are exposed to significant audit risk. Furthermore, these platforms often lack the customized strategy required for complex R&D files.

At Zero To One Strategic, we operate as an integrated partner. We build the defensible technical narratives and financial schedules that lenders require.  We work alongside your chosen lender to validate the "borrowing base," giving them the confidence to lend while ensuring you are audit-ready.

Essential guardrails for quarterly advances

Securing quarterly advances requires meeting specific financial thresholds and maintaining strict operational discipline.

Before seeking capital, companies must assess their readiness against key criteria. Lenders establish these guardrails to ensure the administration of quarterly disbursements is viable and to minimize risk.

• Financial thresholds: Most lenders require a minimum accrued claim value, typically between $50,000 and $100,000 per quarter. Financing amounts smaller than this are rarely cost-effective due to legal and administrative fees.

• Compliance history: You must maintain clean financial records, be up to date on all government remittances (payroll deductions, and Goods and Services Tax / Harmonized Sales Tax (GST/HST)), and have a history of tax compliance.

• Leverage limits: Almost all SR&ED advances are recourse loans. If the CRA reviews your claim and denies the credit, the lender will demand immediate repayment. Therefore, we advise against maxing out leverage. A safe "buffer" strategy involves borrowing only 70% to 80% of the accrued amount. This provides a safety margin in case the CRA adjusts the final refund amount or applies it against other debts.

Our role is to validate eligibility quarterly, ensuring that you never borrow against a claim that won't stand up to scrutiny. Proactive validation prevents the nightmare scenario of spending money you technically never earned.

Frequently asked questions

Common inquiries regarding interim financing focus on risk, cost, and compliance mechanics.

Q: Do quarterly advances reduce my final SR&ED refund amount?

A: No, quarterly advances do not reduce the Investment Tax Credit (ITC) generated. The advance is a loan repaid from the refund proceeds. Because these are structured as bona fide commercial loans, they are not considered "government assistance" (in the technical CRA sense that reduces the claim) and do not reduce the pool of eligible expenditures. You effectively receive the money sooner, but the total grant amount remains the same (minus the interest paid to the lender).

Q: What happens if the CRA audits and denies my claim after I’ve received an advance?

A: You are liable for the debt. Most SR&ED financing is provided on a recourse basis. If the CRA denies the claim, you must repay the lender from other cash sources immediately. This highlights the importance of working with a partner who prioritizes claim defensibility. We strongly recommend pre-validating all technical projects before drawing down funds.

Q: Can I get advances on both federal and provincial credits?

A: It depends on the lender. Some lenders will finance the combined federal and provincial amount, while others may only fund the federal portion due to the variability in provincial processing times and audit rates. The federal portion is generally viewed as more secure and faster to liquidate.

Q: Is there a minimum R&D spend required to qualify for quarterly financing?

A: Yes, lenders typically require a minimum accrued claim value, often around $50,000 to $100,000. Financing amounts smaller than this are usually not cost-effective due to legal and administrative fees. This generally correlates to an annual R&D spend of at least $150,000 to $200,000 in salaries and materials.

Q: How does the cost of these advances compare to other debt?

A: Interest rates for SR&ED advances are typically higher than a traditional bank line of credit but significantly lower than venture debt or the long-term cost of equity dilution. Rates fluctuate with the prime rate but generally reflect the secured nature of the loan. The cost should always be weighed against the opportunity cost of not having the capital to grow.

Conclusion

Proactive financial engineering with SR&ED can be the difference between surviving and thriving.

Quarterly advances turn a passive tax credit into an active growth lever, allowing you to smooth out funding spikes and maintain momentum. However, this strategy requires a cash-flow-first mindset and a commitment to real-time compliance. It transforms the R&D tax credit from a year-end accounting exercise into a core component of your treasury management.

Navigating the intersection of lending criteria and tax law is complex, and missteps can be costly. We recommend assessing your eligibility for quarterly advances with a partner who understands both the capital strategy and the compliance requirements. By building a defensible foundation, you can unlock the capital needed to scale without giving up control of your company.

 Contact us to start a discovery call  with Zero To One Strategic today to build a defensible, cash-flow-positive R&D strategy.

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Administrative processing delays are the primary reason R&D companies face cash flow gaps between spending and receiving their refunds. While the Canada Revenue Agency (CRA) aims to process accepted Scientific Research & Experimental Development (SR&ED) claims within 60 days, refundable claims selected for review have a service standard of 180 days .

In practice, this timeline often stretches to 4–8 months when reviews occur, creating a significant cash flow trough. For many founders we work with, the "60-day" target rarely aligns with operational realities. If a claim is reviewed, the dialogue with the CRA begins, creating a disconnect between when you incur expenses (payroll, materials) and when you recoup capital. For a scaling SME, this gap is hazardous; you have spent money to innovate, but reimbursement is locked in administrative limbo.

Operational impact on innovation

Often these delays force founders into reactive financing decisions. We frequently see companies planning product launches based on expected refunds, only to scramble for emergency capital when delays occur. This can lead to unfavourable terms, such as high-interest short-term loans or down-round equity raises. The operational momentum built during the R&D phase can grind to a halt while waiting for government processing. Treat the refund timeline as a variable rather than a guarantee to maintain momentum. The most successful CFOs we advise model the refund as a lagging indicator of cash flow rather than "certain cash." By acknowledging the volatility of processing times, you can build a capital strategy that insulates operations from bureaucratic delays. This involves setting up financing vehicles before a cash crunch occurs.

What is SR&ED Tax Credit Financing?

SR&ED financing transforms a retrospective tax refund into immediate working capital by securing a loan against your accrued tax credits. This allows companies to access capital quarterly or annually without waiting for the CRA's final assessment. Often referred to as an SR&ED bridge loan, this instrument provides liquidity based on the value of the government receivable you are generating through your R&D work.

The mechanics of the advance

Lenders typically advance a Loan-to-Value (LTV) between 70% and 80% of the accrued credit amount. This is a specialized form of asset-backed lending where the "asset" is the recoverability of your tax credit claim. If you have accrued $100,000 in SR&ED credits, a lender may advance you roughly $75,000 immediately. The remaining portion serves as a buffer for the lender in case the CRA reduces the claim. Once the CRA pays out the full refund, the loan principal and interest are repaid, and the remaining balance is released to you.

Quarterly cash advances vs. annual lump sums

Quarterly advances provide immediate liquidity by funding work as it happens, whereas annual lump sums force you to wait until after filing to access capital.

• Annual: Funding is provided after the fiscal year ends and the claim is filed. This helps bridge the gap between filing and assessment but leaves you funding R&D out of pocket for the entire year.

• Quarterly: Many providers offer R&D refund advance options on an accrual basis, advancing funds quarterly based on work completed.

With quarterly financing, your SR&ED refund functions as a steady revenue stream rather than a yearly bonus. As you run payroll in Q1, you can access the tax credits associated with that spend at the start of Q2. This dramatically reduces the working capital requirement needed to sustain aggressive R&D cycles.

Distinction from government programs

This is commercial debt, meaning it does not grind down your investment tax credit (ITC) base in the same way government funding might. SR&ED financing is a private transaction between your company and a lender. Unlike receiving a grant, which usually reduces your pool of eligible SR&ED expenditures, a properly structured commercial loan leaves your claim value intact. You pay interest to the lender, but you preserve the full principal value of your tax credit.

The cost of capital vs. the cost of dilution

The choice between financing and equity comes down to the difference between temporary interest costs and permanent ownership loss. When evaluating the cost of a bridge loan (interest + fees), compare it against the cost of selling equity at a lower valuation to cover the same operational gap.

Equity preservation is paramount

Paying 1–2% per month in interest is often cheaper than permanently selling a percentage of your company to survive a cash crunch. Founders often suffer from "sticker shock" when looking at the Annual Percentage Rate (APR), often 12–24%, of specialized debt. However, if you raise equity capital to cover a payroll gap, that equity is gone forever. As your company grows, that slice could be worth 10x or 20x its original value. In contrast, the interest paid on an SR&ED loan is a finite, tax-deductible business expense.

Non-dilutive venture debt benefits

SR&ED financing extends your runway to your next milestone, potentially increasing your valuation for the next raise. By using debt to bridge the gap, you avoid raising capital from a position of weakness. You can continue executing on your product roadmap, hitting key technical milestones, and acquiring users. When you eventually go to market for your Series A or B, you do so with better metrics. The cost of the financing is effectively an investment in a higher valuation.

Cashflow-first approach

We generally recommend optimizing for speed and certainty of capital over the absolute lowest interest rate when runway is tight. In a high-stakes R&D environment, liquidity is oxygen. Waiting months to secure a bank loan at a marginally lower rate is a strategic failure if it forces you to pause development. The opportunity cost of stalled innovation usually far outweighs the difference in interest points.

Next step:  Book Time with us To Consider your Options 

Banks vs. Specialized Lenders

Selecting the right lender requires balancing the lower cost of traditional banks against the speed and flexibility of specialized fintech providers. While traditional banks offer lower rates, specialized lenders provide the speed and flexibility required by high-growth R&D firms.

Traditional banks

For mature companies with established banking relationships, Tier 1 banks can be a viable option.

• Pros: Lower interest rates are the main attraction.

• Cons: Stringent eligibility criteria (profitability requirements), slower approval processes, and typically require a filed claim rather than offering quarterly advances.

Specialized SR&ED Lenders

Specialized fintech lenders offer faster deployment and higher LTV ratios by underwriting the tax credit asset rather than the company balance sheet. Zero to One works with a number of Partners that offer SR&ED financing, we're happy to connect you with them as part of our services to our clients.

• Pros: Funding in days or weeks, higher LTV ratios (up to 80%), and willingness to lend against accrued credits before filing.

• Trade-offs: While these providers offer speed, fees are generally higher than bank rates.

Selection criteria

Evaluate providers based on their understanding of the SR&ED program, transparency of fees, and flexibility regarding covenants. Look for hidden fees such as "setup fees" or "due diligence fees" that inflate the effective cost. Furthermore, consider if the lender requires a General Security Agreement (GSA) over all assets or just the receivable. A flexible lender will work with your broader capital stack, not restrict it.

Navigating Compliance

Compliance hinges on clearly distinguishing commercial "bona fide" loans from "government assistance" under the Income Tax Act. Correctly structured financing preserves the integrity of your tax credit claim, while poor structure risks reducing it. We anchor our advice in the Income Tax Act and under the Act, "government assistance" received in respect of SR&ED expenditures must be deducted from the pool of eligible expenditures, reducing your refund. However, commercial loans are not considered government assistance provided they are genuine commercial arrangements where the borrower has an unconditional obligation to repay. If a loan is forgivable or has terms that are exceptionally favourable due to government backing, the CRA might scrutinize it closer. The distinction is usually clear with private lenders, but founders must remain vigilant. The loan agreement should clearly outline standard commercial terms, interest repayment schedules, and recourse.

How to maximize LTV

Maintaining proactive, contemporaneous documentation is the single most effective way to secure higher loan-to-value (LTV) ratios and faster approvals. Lenders offer better terms, such as higher LTV and lower fees, when they trust the defensibility of the SR&ED claim. Further, a seamless handoff between your SR&ED preparer and your lender reduces diligence time. When you work with an integrated strategic partner, the technical narrative and financial data are already organized in a format that lenders trust. Lenders are essentially underwriting the risk that the CRA will deny your claim. If your consultant has a reputation for high success rates, the lender perceives lower risk. This translates directly to money in your pocket: lenders are more willing to advance higher LTV if they are confident the claim will hold up to CRA scrutiny.

Lender-ready checklist

A complete lender-ready checklist includes contemporaneous technical notes, accurate payroll journals, and a clean filing history.

• Technical notes: Dated records of your experiments, hypotheses, and conclusions.

• Payroll journals: Clear breakdown of time spent by each employee on eligible projects, tracked monthly.

• Filing history: Evidence of past claims helps establish a track record of compliance.

The value of consistency

Moving from reactive year-end filing to quarterly tracking allows for quarterly advances. "Messy" claims often result in lower LTVs or rejection, while strong documentation facilitates faster approvals. If a lender has to spend weeks untangling your payroll data, your funding will be delayed. Conversely, a company that utilizes a proactive documentation system can often get approved for accrual financing in days.

Next step:  Book a meeting to explore this approach 

Strategic stacking

Combining SR&ED financing with grants creates a robust capital stack that stabilizes cash flow better than any single program alone. We view non-dilutive funding through four main pillars: Tax Credits, Grants, Wage Subsidies, and Government Loans. By using  our non-dilutive consulting and support services  to integrate annual SR&ED claims alongside other government programs and grants, you also avoid reliance on a single source of funds. In general, we suggest that companies use SR&ED financing to address immediate working capital needs, providing the stability required to apply for longer-term grant projects without desperation. Grants are excellent for forward-looking projects, but they often have long lead times. SR&ED financing can act as the high-velocity capital that keeps the lights on while you wait for larger, slower grant disbursements.

Avoiding silos

Working with a single strategic partner who oversees the entire non-dilutive stack prevents conflicting claims. A common error is inadvertently claiming the same expense twice, once for SR&ED and again within a grant applicatio This is "double-dipping" and is strictly prohibited. An integrated approach ensures that every dollar of spend is allocated to the optimal program, maximizing your total funding while remaining 100% compliant.

Next step:  Book a Call with our Team

FAQs

Q: Does SR&ED financing reduce the amount of my final refund?A: No, it is a commercial loan. However, interest and fees are costs you pay. The principal is repaid from the refund, but the claim value itself remains intact (unlike government funding).

Q: Can I get financing if I haven't filed my tax return yet?A: Yes, many lenders offer "accrual" financing, advancing funds quarterly based on work completed, even before the fiscal year ends.

Q: What happens if the CRA reviews or reduces my claim?A: You are responsible for the shortfall. If the CRA pays less than the loan amount, you must pay the difference to the lender. This is why defensible documentation is critical.

Q: How long does it take to get funded?A: Once your technical and financial diligence is complete, funding can often be deployed in 1–2 weeks

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