An Employee Retention Credit loan gives you faster access to ERC funds. If you're considering an ERC loan, here's what you need to know before starting the ERC loan application process.
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On 1/10/24, IRS Commissioner Daniel Werfel announced that the IRS is continuing to improve and automate ERC review procedures and will begin processing new ERC claims in the spring following the moratorium implemented in September. Existing claims are still being processed and eligible businesses can still submit an ERC claim through reputable ERC companies to be processed when the moratorium ends. Visit our full breakdown of the ERC pause for the latest information.
If you don’t want to wait for your Employee Retention Credit refund, there’s a quick solution: an ERC loan. These loans are available to businesses that have claimed the ERC and don’t have time to wait for the IRS to issue a refund check.
In this post, we’ll go over ERC loans, including how to apply, where to apply, and some alternatives to consider if an ERC loan isn’t the right fit for your business. Keep reading to learn how to apply for an Employee Retention Credit loan.
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Instead of waiting up to a year or longer to receive an Employee Retention Credit refund check from the IRS, business owners are seeking ERC loans. With an ERC loan, a lender provides a percentage of an ERC refund (typically up to 65% of the refund amount) upfront so businesses have quick access to capital.
The business repays the loan (along with interest and/or a fee) according to the lender’s policies. Many ERC loans don’t have credit score, revenue, or time in business requirements like other loans — lenders simply require a valid ERC claim to be filed with the IRS.
You can apply for an ERC loan through a specialty lender or tax firm that specializes in ERC services. If you don’t already have a lender in mind, you can start your research with our list of the best companies for ERC loans.
Whether you choose one of our top picks or find a lender on your own, make sure to do your research, ask questions, compare rates and terms, and properly do your due diligence to find the best ERC loan for your business.
Think you’re ready for an ERC loan? If you want fast access to your ERC refund, here’s what you need to do to apply for an ERC loan.
To receive an ERC loan, you must first file a valid ERC claim with the IRS. After determining you qualify for ERC, you can file your claim using one of two methods:
If you opt to have a third-party ERC company claim the ERC on your behalf, look for companies that file ERC claims and offer ERC loans or advances. Start your search with our list of the best ERC companies.
One thing to note is that you will be required to pay a fee if you use an ERC company to claim your refund. Generally, ERC fees are 10% to 25% of your refund amount, which is usually paid after you receive your refund. This fee is in addition to any interest and/or fees paid to receive an ERC loan.
To proceed with the ERC loan application, you’ll be required to submit documentation to the lender. This may include but is not limited to:
Once you’ve filed your ERC claim, you can begin the process of applying for an ERC loan. If you worked with an ERC company to claim your refund, inquire about their ERC loan or advance programs. Otherwise, you’ll need to find a reputable company that offers ERC loans.
To start the process, you’ll generally need to fill out an online form that requires basic information, including:
Once you’ve submitted this form, a loan rep will typically be in touch within a few business days to ask more questions and determine if you qualify for a loan.
This ERC loan analysis should be free, and there should be no obligations to accept a loan offer. If you’re asked to submit a payment upfront or are pressured to accept a loan, this could be a sign of an ERC scam, so proceed with caution.
If the initial analysis shows that you may be eligible to receive an ERC loan, your lender will ask for additional information and documentation.
It’s important to respond promptly to any requests for information or documentation to avoid delays in processing your ERC loan. Additional documentation may be required now or at any step during the process until your loan is approved and funded.
As you’re working with the lender, it’s important to ask questions about the ERC loan. Some questions to ask include:
If you meet all lender requirements and have submitted an application and all required documents, the next step is loan approval. Once approved, you’ll be provided with an ERC loan contract to review and sign.
Make sure to review your contract carefully. Your loan contract should outline repayment terms, interest rates, fees, and other important information.
If you decide to accept the loan, sign the contract and submit it to your lender.
In most cases, a direct deposit will be sent to your business bank account. Depending on the lender you use, you may receive your loan in as little as two to three business days.
The entire ERC loan process, from start to finish, may take anywhere from a few days to a month or longer, depending on the lender you work with.
Most lenders require payments to begin shortly after funds are disbursed. For most loans, monthly repayments will be made until the ERC refund check has been received. After the check is received, a balloon payment to cover the remaining balance of the loan may be required.
Make sure to fully understand your repayment terms and pay as agreed to avoid additional fees that can add to the cost of borrowing.
An ERC loan is a loan that essentially uses your ERC refund as collateral. The loan is repaid over time (usually through monthly payments) and typically requires a balloon payment once your ERC refund has been received.
An alternative to an ERC loan is to sell your ERC claim. This isn’t a loan but instead is known as an asset purchase wherein a lender, tax firm, or other business offers to purchase your ERC claim at a reduced cost.
If you go this route, you should expect to pay at least 5% of your refund amount as a fee for this service. Additionally, a holdback may be required. This is an additional amount of money that is held until the ERC refund check has been disbursed. Once the check is received, the holdback amount is returned to you.
The advantages of selling your ERC claim are instant access to capital with no monthly repayments or interest. As with ERC loans, make sure to do your due diligence on any company that you are interested in working with, compare fees, and don’t be afraid to ask questions.
An ERC loan has some great advantages for cash-strapped businesses. You won’t have to wait a year or longer to receive your ERC funds, and qualifying is easy — most people who filed a valid ERC claim may be eligible regardless of credit history, income, or other factors.
On the downside, fees and interest can take hundreds of dollars or even more from your ERC refund. If you can afford to wait it out, you’ll pocket more cash. However, these costs may be worth it if you need immediate access to capital. Learn more about if you should take out an ERC loan.
Weigh out the pros and cons, look at your business financials, compare costs, and get a free analysis from multiple lenders to determine if an ERC loan is right for your business. You can also consider other types of business funding, such as small business loans and business lines of credit, as an alternative way to secure business capital quickly.
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