Government Grants Available to Canadian Entrepreneurs

Introduction

The Canadian government, at all levels, provide some form of funding to small businesses and entrepreneurs.

Often, the government will invest far more in your business than private investors. So, it is undeniable that government funding can be used to truly fuel growth.

Moreover, as an entrepreneur looking to scale, you could potentially short circuit market competitiveness if you took full advantage of non-dilutive and debt-free funding instruments.

Keep reading to learn everything there is to know about government funding incentives available to Canadian entrepreneurs.

Overview of government funding mechanisms

There are two main streams of government funding:

1. Tax Credits

2. Grants

Simply put, a tax credit is a deduction from taxes owing. In some cases, if no taxes are owed, a cash refund is given to the eligible corporation.

What about a grant?

A grant is a sum of money that is conditionally earmarked for your company, and that does not require repayment. Among many business circles, this form of funding is also known as “free money”. It is typically awarded to a company on a cost-sharing basis (1:1 or 50%) up to a certain limit.

Some agencies offer hybrid financing solutions, whereby a small portion of total funding will be awarded in the form of a grant, while the remaining portion is a loan.

Both forms of funding have their place. It’s up to you to ultimately decide which is better for your business at any given time.

Defining your project

Whenever you approach a government funding agency, you need to have a specific project in mind. While the general viability of your business is considered, don’t expect government agencies to invest in you unless you have a well-defined project.

A well-defined project includes, but is not limited to:

1. Length of project (e.g. 2 years)

2. Resources required (capital, human, technological or other)

3. SMART objectives/milestones

4. Total cost

5. Expected return (revenue, profit, job growth or other)

Be sure to do all the front-end work before approaching a government funder.

Without proper planning ahead of time, the application process will likely take 3-4x longer, which handicaps productivity and diminishes your ROI.

In fact, without having all of this planned out ahead of time, your project will likely be rejected.

Timing: When to apply for government grants

There are two major timing considerations when it comes to government grants:

1. When to incur project expenses

2. Government fiscal year

Let’s look at both considerations a little closer.

When to incur project expenses

Unlike tax credits, grants cannot be applied to expenses retroactively. In other words, they are designed to cover future expenses not yet incurred, rather than past expenses that have already been accounted for.

Depending on the funding body, you may be able to recover expenses recorded during the review process (time elapsed between the application date and the approval date).

Government Fiscal Year

The government, at all levels, follows an April 1 to March 31 fiscal year. Depending on the program, there is no application deadline, but for others, the sooner you apply, the higher the probability of being funded.

Lesson learned: Plan your projects so the start date is no more than 4-5 weeks after the new fiscal year begins.

Common eligibility criteria

If you’ve done your own research for government grants, it’s obvious that a one-size-fits-all model does not exist. Eligibility criteria differs from one program to the next, and it’s difficult to find a through-line.

Nevertheless, in our experience, we’ve identified four main categories of eligibility criteria, as well as the typical request from funders:

1. Size of company

Typical request: At least 1-3 full-time employees

2. Revenue, Assets, other financials

Typical request: In revenue, with 1-3 years of financial history

3. Ownership type

Typical request: A Canadian-controlled private corporation (CCPC).

Initiatives that are funded by government

So, you’ve planned a project and your company meets the eligibility criteria. What’s next? What is considered an eligible expense and what isn’t?

Here are some common categories of funding the government typically funds:

• Human Resources

  • Hiring: Salary liabilities associated with new full-time employees and COOP students.

  • Training: Fees and salaries associated with skills development

• Innovative Development

  • R&D: Salaries, materials, and sub-contracting fees associated with innovative scientific research or experimental development

  • Collaborative Development: Consulting fees paid to highly specialized research facilities and universities

• Working Capital

  • Injection of cash flow for day-to-day operations

• Export / Commercialization

  • Marketing and travel fees associated with out-of-province or out-of-country trade shows

Conclusion: Calculate your ROI

Truthfully, there’s no such thing as “free” money. As with any other business activity, the effort required to find and secure funding inevitably incurs a cost. In this case, labor usually accounts for most of it. This is best measured by how much the company pays employees to find and secure funding opportunities, and then perform ongoing administrative (reporting) tasks required by the funder. External costs can be a mixture of consulting fees, application fees, and interest charges (on loans).

Moreover, many grants require the company to match the funding amount. For example, if Company XYZ gets approved for a $60 000 grant, they will typically have to supply $60 000 of their own capital as well.

Overall, you want to properly budget your resources when pursuing a grant, so you maximize your return upon approval.

HOW R&D PARTNERS CAN HELP

If you have questions or comments about claiming government funding, please do not hesitate to contact Sahar Ansary at 1-800-500-7733 for more information.