Whether you’re researching ways to fund an expansion or you need financing to meet your business’s current needs, you’ll soon realize that you basically have two types of funding programs: dilutive funding and non-dilutive funding. While dilutive financing is the flashier option — think about all the startup founders’ venture capital success stories that have flooded your LinkedIn feed in recent months — these come at a price in the form of giving up a piece of their business.
Non-Dilutive Financing Explained
Non-dilutive financing might also be referred to as non-dilutive capital or non-intrusive capital. Regardless of which name you hear, the bottom line is that these terms indicate that the funding was received without the business owner having to forfeit some portion of the company. In other words, you, as the owner, retain full control of your business — even as you enjoy access to this free money.
Types of Non-Dilutive Capital
Different types of non-dilutive funding are available. Depending on their requirements, it could be a challenge to be approved.
- Loans: Available as both informal and formal transactions, a loan can span a range of options. For example, money loaned to you by friends and family members might not require any collateral. It could be a different story when it comes to a financial institution. A financial institution will also require ample credit and demonstrated resources.
- Grants: Research grants are another option when it comes to non-dilutive financing. Because most grants don’t have to be repaid, the competition for them can be fierce. In many cases, you must also meet basic criteria in order to qualify for a chance at an award. The Canadian government offers an extensive list of grants, which can be overwhelming to navigate while busy running your business, but consultants and accounting firms can help with this.
- Tax Credits: The Canadian government offers refundable tax credit that rewards businesses that invest in research and development activities. Known as the Scientific Research and Experimental Development (SR&ED) Program, it pays businesses back a portion of the money spent on approved activities. This is free money that your business doesn’t need to compete with any other business.
Tapping into the SR&ED Program
Like other government funding programs, the SR&ED Program requires ample documentation as proof of the activities that were carried out. In addition, there are deadlines that must be met and reports that must be accurately composed. An experienced SR&ED consultant is your ally during this process and well worth the time and expense required to retain. Speak with a consultant before attempting to calculate your SR&ED tax credits.