Choosing a Non-Dilutive Funding Partner for your Business

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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Securing government grants requires a strategic shift from passive searching to active eligibility scoping and compliance management to ensure capital is actually realized without administrative burnout. Founders and finance leaders often view grants as "free money" to be hunted down when cash is tight, but this reactive approach rarely yields results in a competitive environment.

Non-dilutive funding should be viewed as a reliable capital pillar that protects equity, not just a bonus found by luck. When treated as a core business function, grant funding stabilizes cash flow and extends your runway without forcing you to part with ownership. However, the complexity of identifying the right programs in means that a manual, "do-it-yourself" approach is increasingly risky. This guide explores various options including manual search, how to map your expenses to strict eligibility criteria, and ultimately, how to choose the right partner to secure your capital.

Finding the Right Grants

Manual tracking of funding opportunities can leads to missed deadlines and administrative burnout because the government funding landscape changes far faster than any internal team can monitor. We argue that relying on spreadsheets or bookmarking government websites is an inefficient use of executive time that often yields a negative return on investment due to the sheer volume of data.

One of the biggest challenges is the speed at which programs open, pause, and close. A founder or controller spending five hours a week scouring government portals is five hours diverted from core business operations. This opportunity cost is high, especially when the return on that time investment is often zero due to the complexity of deciphering program guidelines.

The volume problem

There are thousands of funding programs across federal, provincial, and private sectors, creating a data overload that is impossible to manage without specialized tools. While agencies provide lists of initiatives, the sheer number of programs remains a challenge for internal teams to filter effectively, a reality highlighted by lists from Innovation Canada. Navigating between federal agencies such as Innovation, Science and Economic Development Canada (ISED), regional development agencies, and provincial ministries creates a fragmented view of the ecosystem.

The "noise" of search engines

Standard search engines frequently return outdated program guides, closed funding windows, or irrelevant links, wasting valuable time. This "noise" creates a false sense of availability, in some cases leading teams to prepare project scopes for grants that effectively closed months ago. Additionally, manual searching often fails to identify "program stacking" opportunities, combining multiple compatible grants. This strategy requires a sophisticated understanding of stacking rules.

The strategic gap

The strategic gap between companies is widening because efficient identification requires aggregated data and active monitoring rather than keyword alerts. Missing a deadline by a day or failing to notice a subtle update to an applicant guide can cost a company significant non-dilutive capital.

Working with a Partner

Selecting a grant specialist requires distinguishing between volume-based software providers, generalist accounting firms, and integrated strategic partners. While many firms offer grant services, their models differ significantly in terms of technical depth, audit defense, and customization.

Large accounting firms

Large accounting firms offer significant breadth but often treat grants as an ancillary service to their core audit and tax functions. While they provide a "one-stop-shop" for large corporations, their size can lead to high overhead costs and less agility for SMEs. Their grant writing is frequently handled by generalists rather than specialized technical writers, which can result in generic narratives that fail to capture the specific innovation nuances required for competitive technology grants.

Tax-focused specialists

These firms specialize heavily in tax recovery but may lack the forward-looking strategic focus required for discretionary grants. While efficient at processing retroactive claims, their siloed approach can miss opportunities to align future R&D roadmaps with upcoming grant windows. This separation between tax and grant strategy often leads to missed stacking opportunities.

Automated platforms and volume consultancies

Software-driven firms focus on volume and database access. While they excel at identifying lists of programs, their model often relies on template-driven writing or automated matching. This approach can generate "false positives" regarding eligibility and lacks the deep technical interviewing process necessary to frame complex R&D projects competitively against strict government criteria.

The integrated partner advantage

Compnies such as Zero To One Strategic operate on an integrated partner model that bridges the gap between technical depth and financial strategy. Unlike generalist firms, we specialize in R&D-heavy industries, ensuring that your grant narratives are technically precise. Unlike automated platforms, we manage the full lifecycle, from identification to compliance, ensuring that your grant strategy actively supports your SR&ED claims rather than conflicting with them.

Eligibility Matching

Successful applicants map specific projects to eligible categories before writing a single word to prevent wasted effort on mismatched programs. The most common reason for grant rejection isn't the quality of the technology, but the misalignment of the budget. Before you draft a narrative, you must determine if your specific expenditures actually fit the rigid definitions provided by the funding body.

Map costs before writing

Do not start an application until you have mapped specific line-item expenses within your project to the program's eligible cost categories. Eligible and ineligible costs vary significantly from one program to another. For example, some grants may cover 50% of internal labour but 0% of capital hardware. If your project budget is heavy on ineligible costs, the effective grant value may be too low to justify the effort.

Eligible vs. competitive

Distinguish between meeting the basic criteria (eligibility) and having a high probability of winning (competitiveness) by adhering to technical guardrails. For R&D-focused grants, simply having a project is not enough; you must demonstrate systematic investigation, technological uncertainty, and scientific advancement. Many companies waste resources applying for grants they theoretically fit but are unlikely to win because they cannot articulate these three pillars clearly in their narrative.

Stacking rules: bona fide loans vs. government funding

Understanding the distinction between bona fide loans and government funding is critical when stacking funding to avoid reducing your tax credits unnecessarily. Government funding (such as non-repayable grants) generally reduces the pool of eligible expenditures for tax credits like SR&ED. However, bona fide loans (repayable government contributions) often do not reduce your claimable expenses. Failing to distinguish between these two can lead to incorrect calculations and potential audit adjustments.

To understand how we assist with strategic eligibility matching and ensure your projects are scoped correctly from day one,  review our services for non-dilutive funding & grants .

Compliance and Reporting

Grant recipients must establish rigorous reporting workflows immediately upon award to avoid clawbacks and ensure the capital is actually realized. Securing the grant agreement is only the first step; keeping the money requires proving that you spent it exactly as you said you would.

Build compliance into the workflow

Building compliance into the workflow requires viewing the contribution agreement as a binding contract and setting up internal codes to track expenses immediately. As an example, this might mean creating grant-specific codes in your accounting software to segregate costs from general operations. If you cannot segregate the costs cleanly, you cannot report on them accurately, which invites scrutiny.

Reporting obligations

Grant recipients must submit regular reports to the funding program to demonstrate the project is being completed according to the agreement. You will be required to sign a funding agreement that outlines all responsibilities. These reports typically include financial summaries, proof of payment (such as bank statements), and technical progress updates.

The compliance owner

Assign a dedicated role (such as a controller or finance lead) to own the reporting schedule to prevent missed deadlines. Responsibilities include milestone updates, financial tracking, and progress reports. Designating a compliance owner ensures continuity if the original writer leaves the company.

Contemporaneous documentation

Recording data as it happens is the single best lever to defend against potential audits or reviews. Recreating a paper trail months after a project milestone is difficult and often results in errors. You need a system that captures technical challenges and financial outlays in real-time. Reviewing our guide on  audit-ready record-keeping workflows  for SR&ED might be helpful here as well, to streamline your documentation process.

Understanding contingency vs. Fixed Fee models

Fee structures vary by program rules, with many allowing contingency-based billing while others require fixed-fee arrangements to ensure compliance. It is vital to understand these nuances before engaging a partner. Many partners operate on a success-fee basis, aligning their incentives with yours. This model is often supported by industry bodies such as the Grant Professionals Association (GPA) when applied ethically.

However, some specific programs do not allow contingency-based billing at all; in these cases, we provide transparent scopes upfront. To discuss which fee structure applies to your target programs,  contact us to discuss fixed-fee scopes .

Next Steps:  A Non-Dilutive Funding Roadmap

Bottom line, transitioning from reactive searching to a proactive 12-month funding roadmap aligns capital influx with your R&D milestones to maximize cash flow. Instead of scrambling to apply for a grant that closes in three days, a roadmap allows you to prepare projects in advance, even if you aren't yet aware they exist. Look at your product roadmap for 2026. Where will you be hiring? When are you buying major equipment? Map these business events to the known cycles of major government funding programs.

Stop manually searching and start strategically funding.  Connect with us to assess your eligibility for current government grant programs.

FAQs

Q: How much do grant consultants typically charge?

A: Fees vary based on the model. Contingency firms typically charge between 15% to 30% of the funding secured, payable only upon success. Fixed-fee consultants may charge by the project or hour. At Zero To One Strategic, we tailor our structure to ensure compliance with the specific program you are targeting.

Q: Can I use AI tools to write my grant applications?

A: While AI can help with grammar, it often lacks the specific context required for a competitive application. Government reviewers look for concrete details and clear financial justifications. AI-generated content is often too generic and may hallucinate facts or eligibility rules, leading to rejection.

Q: Does receiving a grant affect my SR&ED claim?

A: Yes. Government grants generally must be deducted from your pool of eligible SR&ED expenditures. However, the net benefit of stacking a grant and SR&ED is usually positive. Strategic planning is required to ensure you optimize the interaction between the two programs.

Q: What happens if we don't spend all the grant money?

A: You cannot claim the funds if you do not incur the costs, as grants are typically reimbursement-based. If you spend less than anticipated, you will simply be reimbursed for less. It is crucial to forecast budgets accurately to avoid leaving allocated funding on the table.

Conclusion

Successfully unlocking non-dilutive capital requires a deep understanding of Canada's grant and incentive programs, from initial identification through post-award compliance. By partnering with an expert firm that aligns with your success, you can navigate this complexity, maximize your funding, and maintain solid records, allowing you to focus on what you do best: innovation.

Ready to unlock non-dilutive funding for your R&D?  Start a discovery call with Zero To One Strategic today. 

This content is for general informational purposes only and does not constitute tax or legal advice. Please consult with a qualified professional for advice tailored to your specific situation.

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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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