Another Option to Finance Your Innovation and Growth
By James Ro | November 1, 2012
Financing for innovation, growth or expansion (e.g. new product development, facility modifications/upgrades, purchasing equipment and machinery, training of staff, etc.) remains a large obstacle for many small and medium-sized enterprises ("SME's") in Canada.
Both the federal and provincial governments provide their financial support through over $20 billion in various funding programs each year. The problem is, there are literally hundreds of programs to choose from and different types of funding in the form of tax credits, grants and loans – each with its own attributes and limitations.
Companies in all industries and of all sizes should know that receiving government funding is one of the best ways to finance an expansion project and provides a significant competitive advantage in the domestic and international marketplace. The government recognizes that these initiatives encourage Canadian businesses to take on business risk and continually innovate, pursue new markets, grow the economy and create local jobs.
When a company makes a decision to invest in innovation or growth, there needs to be a certain level of confidence that it will be able to at least recover the initial investment in a timely fashion. Government funding programs assist them in realizing a positive “return on investment” and are a significant addition to cash flow - it is cash flow that drives investment. At the end of the day, companies are at a significant competitive disadvantage if they do not take advantage of various programs, especially if they are eligible to receive funding.
Financing for SME’s is always a challenge.
Approximately 20 per cent of all Canadian business owners indicate that obtaining financing is an obstacle to growth. Whether it is to invest in product development, process improvements, working capital, facility expansion or for the purchase of new equipment, government grants, loans and tax credits should be considered as a part of the overall financing solution (in addition to debt and equity).
Currently, there are significant hurdles in identifying programs that exist and in complying with the application processes. Furthermore, most government grants and loans change periodically, have limited funding dollars and specific application periods. Studies have shown that the main reasons for companies not to participate in various government funding programs are (among others) that they are not aware of these programs and the application process is too burdensome and time consuming.
In most cases, companies do not have the time and resources to stay current with the federal and provincial funding system as well as deal with the unpredictability and inconsistencies of the application processes. These facts can help justify using experienced consultants as they often play a role in educating, increasing awareness and helping companies locate the right programs for their purposes and eligibilities. Furthermore, consultants address a serious need in the market – entrepreneurs having little or no understanding of government funding programs.
It is believed that the majority of grant and loan applications are rejected for non-compliance so why not demystify the whole process and use an expert to increase the chances of funding success?
A company with little experience and knowledge in government programs would be unlikely to understand that:
- There are distinct differences between grants, loans and tax credits;
- Different funding programs have specific eligibility factors, timelines and objectives;
- Most programs require a business to be incorporated for a certain period of time;
- Some programs have restrictions on the number of employees;
- Companies need to have a certain level of financial stability;
- Some programs require a robust business plan; and
- Government funding should be approached on a holistic basis and examined strategically, due to the number of programs available.
If third-party preparers can improve the awareness and program application compliance, especially in today's changing economic landscape, then accessing financing from these sources can give Canadian companies the edge they need to take their business to the next level.
Unfortunately, until the federal and provincial programs are consolidated or integrated and become less complicated, there will always be a role for consultants to assist businesses in preparing funding applications and encouraging them to invest in innovation and growth. As most companies retain accountants to complete their tax returns due to the fact that it is an enormous amount of work and they understand the complicated tax law, you can apply the same rationale to using a consultant when applying for various government funding programs.