Financing innovation within your business

26 July 2023 by National Bank
Photo of a woman using a bike-sharing system for an article about innovation within a business.

There are several ways to finance innovation. Each financing option has its own advantages and obligations. To make the best choice, you need to consider your company’s needs and objectives. Here are a few tips and resources to help you make the right choices.

Why choose to finance innovation in your company?

Financing innovation has many benefits for a company. For example, it can help improve efficiency and profitability, better position a company in a competitive environment, and even attract or retain the talent needed to support new projects. Above all, financing innovation is key to staying ahead of the competition. Innovation both helps protect and grow your business to keep you in the lead.

How do you determine where to invest the financing, and why?

To find out which financing method is best for your project, you first need to identify the areas of your company where you’d like to innovate. For example, you might want to improve your products, roll out new technology, or provide training to your teams so they can achieve their full potential.

What sources of financing are available for innovation?

There are many sources of financing available for innovation projects. Here are the main ones to consider, along with their characteristics. Take a close look at these options, as one – or more – may be right for you.

Commercial partnerships

Innovating often means venturing into uncharted territory. That’s why drawing on the experience of people who’ve been there before is invaluable.

Statistics² show that large companies are more likely to be innovative – at nearly 86% compared to 79% for SMEs. This is mainly due to more labour pool. But SMEs tend to be more agile and creative in maximizing limited resources, which provides fertile ground for innovation.

It makes sense for these two categories of companies to join forces and work together towards the desired innovation. For example, a large pharmaceutical company could form a strategic alliance with a life sciences start-up that has developed an innovative molecule, with the aim of manufacturing and marketing a new drug.

Research institutes

Research institutes are at the cutting edge of industry knowledge and trends and have access to a highly specialized workforce. Collaborating with one of them could give your project what it needs to take off. There are many organizations in Canada, but here are the most well-known (the following links lead to external websites):

Accelerators and incubators

Within the innovation support ecosystem, some accelerators and incubators support start-ups and developing companies. In addition to providing administrative, logistical and technical support, they also help finance innovation. ACET is one of them.

Tax credits

Scientific research and experimental development tax credits are a great way to help companies finance research and development. These incentives can cover a significant percentage of innovation spending, whether on salaries, consulting fees, equipment or even capital expenditures.

In addition to federal tax credits, each province and territory, with the exception of Prince Edward Island, Nunavut and the Northwest Territories, also offers a tax credit for eligible activities. In some cases, the combination of federal and provincial credits can total nearly 70% of expenses.

Good to know: There are deadlines in Quebec and Canada (external website) for claiming these tax incentives or for amending prior years’ tax returns if credits haven’t been claimed in full.

Government subsidies and funding

Different levels of government also finance innovation through subsidies. These can be applied at various levels. For example, they can be used to cover the costs of research, equipment, or researchers’ salaries.

These subsidies can also be used for the design and development of innovative product or service prototypes to help companies test new ideas more quickly. Marketing costs of new products or services, workforce training and the recruitment of qualified personnel to work on innovative projects are also eligible.

In Quebec, Investissement Québec (external website) is a major funding agency, but financing at the municipal level, such as the Open Innovation Subsidy Program for start-up companies in Montreal, is available too. Contact your municipality for more information.

You’ll also find other sources of innovation funding and support at the federal level, including (the following links lead to external websites): NRC IRAP, Innovative Solutions Canada, and Sustainable Development Technology Canada. Other Canadian provinces offer additional sources, such as the Atlantic Innovation Fund.

What other financing options are available?

In addition to sources of financing specific to innovation, it’s possible to obtain support for all kinds of projects. Private financing, bank financing, or a socio-financing campaign are all possible options.

Are you looking to finance a new project? Find out how National Bank can help you in your search for innovation financing.

Legal disclaimer

Any reproduction, in whole or in part, is strictly prohibited without the prior written consent of National Bank of Canada.

The articles and information on this website are protected by the copyright laws in effect in Canada or other countries, as applicable. The copyrights on the articles and information belong to the National Bank of Canada or other persons. Any reproduction, redistribution, electronic communication, including indirectly via a hyperlink, in whole or in part, of these articles and information and any other use thereof that is not explicitly authorized is prohibited without the prior written consent of the copyright owner.

The contents of this website must not be interpreted, considered or used as if it were financial, legal, fiscal, or other advice. National Bank and its partners in contents will not be liable for any damages that you may incur from such use.

This article is provided by National Bank, its subsidiaries and group entities for information purposes only, and creates no legal or contractual obligation for National Bank, its subsidiaries and group entities. The details of this service offering and the conditions herein are subject to change.

The hyperlinks in this article may redirect to external websites not administered by National Bank. The Bank cannot be held liable for the content of external websites or any damages caused by their use.

Views expressed in this article are those of the person being interviewed. They do not necessarily reflect the opinions of National Bank or its subsidiaries. For financial or business advice, please consult your National Bank advisor, financial planner or an industry professional (e.g., accountant, tax specialist or lawyer).