Throughout this four part series, we explore how Canadian companies can ease the transition from performing R&D to commercializing their products or services. Part 1 of this series provided an overview of business growth in the Information and Communications Technology (ICT) sector, while Part 2 focused on the training and hiring of employees in the manufacturing sector as a means to bridge the commercialization gap that exists between small-scale R&D and full-scale production. Part 3 continues by surveying capital investment opportunities for bridging the commercialization gap that exists in the manufacturing sector. The final installment will review innovation commercialization in the Agri-Food industry.
Capital Investment and the Commercialization Gap:
Closing the gap between R&D and commercialization is a complex endeavour that requires manufacturing companies to transition toward an advanced workforce while, at the same time, implementing advanced manufacturing methods, developing new products, and increasing capacity through capital investment in equipment and facility expansion or upgrades.
Capital investments can allow companies to pursue expansion in order to increase production or run new products or technologies, and they can also be used to implement new and advanced technologies such as such as artificial intelligence and collaborative robotics in order to increase efficiency and reduce costs.
Federal and provincial funding programs can offset the costs of capital investments, which can then be reinvested into the company to further R&D efforts or to explore new business development initiatives.
Government Funding for Capital Investments:
One such program, the Strategic Innovation Fund (SIF), contributes up to 50% of the costs for eligible activities in the form of a repayable loan, a non-repayable grant, or a combination of the two. Eligible costs are limited to non-recurring costs that include direct labour, overhead, materials and equipment, as well as land and buildings. The SIF program consolidated the former Strategic Aerospace and Defence Initiative, the Technology Demonstration Program, the Automotive Innovation Fund, and the Automotive Supplier Innovation Program.
Additionally, the Federal Economic Development Agency for Southern Ontario (FedDev Ontario) offers several funding programs that can be used to increase capacity and efficiency while advancing technology in order to bridge the commercialization gap. The Investing in Business Growth & Productivity (IBGP) initiative helps SMEs expand their markets and facilities through adoption of new technologies and processes in order to improve productivity, and increase business capacity to participate in global markets. IBGP provides repayable contributions up to $20 million or 25% of eligible activities such as facility improvements/expansion, adoption of new technologies and related skills development, as well as market development/expansion and business growth.
For start-up businesses, the Investing in Business Innovation (IBI) program assists with the commercialization of new products and processes. IBI increases and leverages private sector investments for a repayable contribution of up to 33% or a maximum of $1 million of total eligible project costs, where conditional funding of the remaining project costs has been secured from an eligible angel or venture capital investor located in Southern Ontario.
The Southwestern and Eastern Ontario Development Funds (SWODF and EODF) support regional economic development in Ontario by creating jobs, attracting private sector investment, and promoting innovation, collaboration and cluster development. Up to 15% of eligible project expenditures will be offered as a conditional grant to a maximum of $1.5 million, with the possibility of increased funding as a secured repayable loan for larger projects. Eligible projects involve investment in existing operations to improve productivity or investment in the pursuit of business expansion, such as the introduction of new products through the development of infrastructure, project facilities, or equipment and machinery.
In addition to these programs, cost-sharing grants are available that can further help companies to expand their commercial markets. The Export Market Access (EMA) and the CanExport programs help to offset costs related to developing exports in foreign markets by providing 50% of eligible costs, up to $30,000 or $100,000 per project, respectively.
Combining Capital Investment with R&D and Innovation:
Grants that support capital investments can be combined with the SR&ED tax credit program to capture the eligible expenditures, as long as expenditures are tracked and reported separately. R&D efforts that result in technological advancements, such as the development of advanced full-scale processes, can be eligible for refundable and/or non-refundable tax credits.
Capital equipment was eliminated as an eligible expenditure from the SR&ED program as of January 1, 2014, though the capital that was eligible was limited to R&D capital such as testing equipment. This elimination has, however, allowed for a reallocation of funds towards direct funding programs such as IBGP, which allows businesses to apply for support for their capital equipment purchases alongside their yearly SR&ED claim submissions. The purchase of capital equipment may also be linked to the development of new or the improvement of existing manufacturing processes, with the labour component being eligible for SR&ED tax credits.
Making capital investments in order to gain the capacity and technology required to compete on a global level is just as critical to bridging Canada’s commercialization gap as attaining and retaining a sufficiently large and skilled workforce. Numerous federal and provincial programs are available to help companies finance capital investment for these purposes. The business growth that occurs as a result of capital investment can diversify and strengthen the economy while also advancing business expansion and innovation.
In the final installment of this series, we will focus on bridging the commercialization gap in the Agri-Food sector.
*Co-authored by Jen Mahon, Vice President of Operations, and Kyle Alkema, Technical Writer at NorthBridge Consultants.