Toronto and Vancouver (PRWEB) March 14, 2011
Employing inventive funding methodology, growth capital financier Espresso Capital Partners has helped almost 50 Canadian companies, primarily involved in technology, cover short-term cash crunches.
The Espresso SR&ED-based bridge financing program provides a new method for technology companies facing cash flow problems to raise funds. Previously, young Canadian companies needing cash for growth had little or no access to this short-term financing.
In a little more than a year, Espresso has provided $13 million in short-term loans to Canadian companies that qualify for Scientific Research and Experimental Development (SR&ED) credits. SR&ED is a Canada-wide tax incentive program that rebates part of the cost of development and commercialization of new and innovative products and services.
The SR&ED program is the largest single source of federal government support for R&D in Canada.
“Companies are calling us because there is no real system for short-term bridge financing in Canada,” explained Espresso Capital partner Garron Helman. “Usually, they’re young, growing companies with a lack of tangible assets, so the banks won’t touch them. They either don’t want to or can’t raise additional equity from the venture market, and their only other source of cash might be if an angel investor extends some to them. But they do have a fundable asset in their intellectual property and an SR&ED claim.”
Exacerbating this problem is a background policy of tightened lending by most banks in the wake of the recession and increasing conservatism among venture capital funds. This has created a shift towards using SR&ED as a method to finance growth or bridge to an equity raise.
As a result, seasoned entrepreneurs and investors Helman, and partners Gary Yurkovich and Greg Smith, created a further shift to accrued SR&ED loans (loan prior to SR&ED being filed) to allow for improved cash management. “SR&ED has always been available, but most people didn’t realize they can leverage a SR&ED claim as an asset,” Helman explained.
SR&ED financing can be an untapped source of capital for Canadian companies engaged in R&D without the entanglement of equity investments, Helman added.
“For young companies that have cash flow constraints, this asset can mean the difference between standing still and continuing on the growth path.”
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