My Funding Application Won! When Do I Get My Money?
You have an upcoming project that will help your business grow and you’ve identified a suitable funding vehicle to support this project from the sea of government funding programs. You have even completed a strong application and been approved for government funding! All this excitement leaves you with an important question “When do I get my money?”
This is, understandably, one of the most common questions that government funding applicants ask. However simple this question may be, the answer may be complicated and dependent on a variety of factors. This article will help outline what common factors come into play with government funding and what timelines you may expect for your grant or loan payments, as well as critical aspects to consider to keep your costs eligible.
What Makes an Expense “Eligible” for Funding?
When discussing government funding, it is crucial to understand the concept of an eligible cost. Government funding programs do not simply offer money to just anyone, they are designed to funding specific expenses and activities in order to achieve a specific impact. For example, a funding program might be geared towards helping Canadian companies afford artificial intelligence (AI) training for their employees or provide funding for food and beverage companies that are automating their food production systems.
There are a broad range of programs which aim to achieve a broad range of outcomes and, therefore, have a broad range of eligible costs. It is important to carefully consider the eligible costs of the program you want to apply for, to ensure they will truly align with your project plan and spending.
Each program has a list of eligible expenses that will be combined into an overall project budget. Your project might have expenses that might not be eligible for specific funding. In this case, the applicant is expected to cover these ineligible costs or find alternative funding programs to cover these elements.
Programs will only cover a portion of eligible costs, such as 50% of costs. Others might even have limits on funding dollars towards specific funding categories or overall funding limits per project. Applicants for proactive funding are expected to cover the full costs of expenses before being reimbursed by the government funding agency.
What are the Different Types of Government Funding?
There are two primary types of government funding to be aware of which are commonly identified as “retroactive funding” and “proactive funding.”
Retroactive funding programs are designed to help compensate businesses and organizations for projects that have already been completed or have begun to yield results. Applicants will apply after carrying out the fundable activities.
Retroactive funding programs are commonly designed as tax incentive programs which will incentivise or encourage economic behaviour by giving favourable tax benefits, such as reduced tax payments, to a company that has contributed in a meaningful way to a program’s intended objective.
For example, if a Canadian manufacturing company completed an experimental development project that improved their specialized manufacturing processes by 10%, they may qualify for a popular retroactive Canadian program called the Scientific Research and Experimental Development (SR&ED) and receive a tax credit towards eligible expenses.
Proactive funding programs are the opposite. They are designed to help businesses and organizations fund a future project. These programs support projects that are planned and funding will allow them to improve in scope, speed, or scale. These proactive funds are often issued as grants, vouchers, incentives, or repayable funding.
Carrying out expenses too soon can make an expense ineligible for funding. Common purchase restrictions for proactive funding include not being able to incur project expenses until you submit your application, have been formally approved for funding, or signed a funding contribution that specifies expense timelines.
For example, if a Canadian autonomous vehicle (AV) company wished to perform research and development on a new system that could revolutionize the industry, they may be eligible for a proactive funding program such as the Autonomous Vehicle Innovation Network’s (AVIN) AV Research and Development Partnership Fund: Technology Demonstrations to cover research costs.
Therefore, successful applicants should understand that reimbursement timelines depend on the program. Just as important, expense timelines are important to know in order to stay aligned with the program’s timelines.
Also, once a company applies for funding and is successful, that company must ensure that they are spending their won money on relevant costs to the program that allocated the winnings and not on other, unrelated costs. One of the ways the Canadian government ensures the awarded grant or loan is spent on what it should be is by having applicants sign a contribution agreement. This document will outline when they can incur eligible expenses and when they will receive their reimbursements.
Funding Contribution Agreements & Expense Reporting
Government funding programs require approved applicants to agree with and sign a “contribution agreement”. The contribution agreement is designed to clearly outline the terms of a grant or loan transfer and the obligations and requirements for both the funding body and the recipient. Contribution agreements are very detailed, so we will keep this review high level, though we recommend readers learn more through this comprehensive contribution agreement article.
“The Organization shall be responsible and accountable for the procurement of goods, equipment and services for the project and shall respect the principles of transparency, integrity, competition, fairness and value for money.”-Government of Canada, Contribution Agreement – General Terms and Conditions
Typically, applicants who have been approved for funding through a contribution agreement are expected to complete required reporting obligations, which outline project, expense, and impact progression. Applicants can expect the process to look similar to this timeline:
- Applicants submit their applications for a pre-determined initiative which outlines the purpose, goals, and milestones of the project;
- Applicants are approved for their project and sign a contribution agreement document which key funding and project details and obligations;
- Reimbursement details and timelines are clarified in the contribution agreement, which is signed by all involved applicant and recipient parties; and
- Applicants commence their project and provide detailed outlines of their expense reports to the funding body who then issues reimbursements based on agreed upon timelines (eg. After proof of purchase, at key milestones, percentage reimbursement evenly split throughout the project’s duration).
That being said, it is important to understand that the terms of your government funding allotment will be influenced by the type of funding you’re approved for. When in doubt, contact the government funding agency to determine reimbursement timelines before applying and always confirm these timelines when signing your contribution agreement.
Understanding Reimbursement Timelines
A reimbursement timeline is a reference to the allotted schedule which a programs’ payout or benefits (such as tax credits) will follow. There are a variety of different ways a reimbursement timeline may be structured, and it often reflects the nature of the programs’ goals:
- A percentage upfront: Some programs will provide a percentage of eligible expenses upfront;
- Periodic payouts: Some programs may make periodic payouts throughout a specified time period, such as throughout the summer for a summer intern;
- Project milestones: Some programs are designed to provide support once a project has reached a pre-determined milestone; and
- Dispersed funding: Programs may also be designed to disperse funding by breaking the amount into payment percentages, such as 30% upfront, 20% at a predetermined date, and the remaining 50% upon project completion.
- Funding holdbacks: Some funding agencies will wait until project impacts, reporting, or obligations are complete before remaining funds are issued.
These are simple examples of what government funding program payments may look like, though each program provides their own unique stipulations. It is important to speak with a government funding professional prior to submitting your application.
The Importance of Not Spending Before Approval
It is critically important to understand the terms of the government funding program you have applied for before you start spending on your project. Many government funding programs will only cover eligible costs that have been made after application approval. If you spend too early, key expenses could become ineligible. Therefore, it is important that you do not start spending on costs you were hoping to have covered, prior to fully understanding the terms of your contribution agreement.
Get Started with Government Funding
Although this review covers the ins and outs of payout timelines for proactive and retroactive programs, it is important to note that the world of government funding is complex and dynamic. Please take some time to speak with a government funding professional to learn more about how your business or organization may benefit from available programs.
If you are interested in getting the ball rolling, we also recommend you visit this comprehensive government funding resource page which provides a variety of white papers, slide decks, and more on industry opportunities and changes. To read more articles about government funding, business strategy, and funding success stories in Canada, readers will love this full-scope news channel.