What Is An ERC Grant?

The Employee Retention Credit (ERC) is putting money back into the pockets of small business owners. If you’ve heard of these “ERC grants” and aren’t familiar with the program, you may be curious as to how you can apply to get funding for your business.

The term “ERC grant” is a bit misleading, though, as (spoiler alert) the ERC isn’t a grant. However, for businesses with employees, the ERC is actually better than a grant. Here’s what you need to know.

Is The ERC A Grant?

The Employee Retention Credit is not a grant. Instead, the ERC is a covid-related refundable tax credit relief available to eligible businesses that paid employees in 2020 and 2021.

What Are ERC Grants?

A grant is defined as money that is given by a government, organization, or individual that does not have to be repaid. Grant programs for small businesses are generally very competitive and have strict requirements for industries, usage of funds, and the application process.

While the ERC program does have a few similarities to grant programs, there is no such thing as an ERC grant. Instead, the ERC is a refundable tax credit available to eligible small businesses that kept employees on payroll throughout 2020 and 2021.

The only “ERC grant” that exists is the European Research Council grant which is a very different beast than the employee retention credit.

ERC Grants VS ERC Loans

Because companies like the SBA are falsely calling the ERC credit an “ERC grant,” there’s still a lot of confusion around the employee retention credit. Add terms like ERC refund, ERC loan, and ERC funding to the mix and it’s no wonder business owners are searching for answers.

To clear everything up, like we’ve said there is no such thing as an ERC grant. Instead, the ERC refund or tax credit operates similarly to a grant in that it’s free money but it’s in the form of a tax credit not a grant. An ERC loan gives business owners quicker access to their ERC refund. Learn more about the key differences between ERC grants vs ERC refunds vs ERC loans.

What Is ERC Funding?

In most cases, the term ERC funding refers to the retroactive refunds being claimed by small business owners.

Through the ERC funding program, qualifying small business owners may receive up to $26,000 per employee. Eligible business owners may receive up to $5,000 per employee paid in 2020 and up to $21,000 per employee paid in 2021. Startup recovery businesses may qualify for additional funding for 2021.

There is no limit on funding and no restrictions on how funds are used. Since the ERC is a tax credit and not a loan, these funds are yours to keep and do not have to be repaid.

Some ERC companies also use the term ERC funding to describe ERC loans. ERC loans (also known as ERC advances) are used to give business owners claiming the ERC quick access to cash. Companies that offer ERC funding for small businesses pay owners an upfront payment in weeks (or, in some cases, days), eliminating the months-long wait for the IRS to process claims.

While ERC loans do come with additional fees, the cost may be worth it for businesses that need to boost cashflow quickly.

How The ERC Works

Businesses that are eligible for the ERC don’t have to go through the complex and often disappointing grant application process. By filling out the correct tax forms (or hiring an ERC company to do the hard work for you), you’ll receive the money owed to you as a refund. These funds can then be spent however you choose with no limitations.

Qualifying For ERC

To qualify for ERC, businesses that paid qualified wages during the COVID-19 pandemic must meet one of these two conditions:

• Had a significant decline in income during any quarter in 2020 or 2021
• Fully or partially suspended operations due to a government order in 2020 or 2021

Before claiming your ERC refund, make sure you fully understand the full ERC eligibility requirements to determine if you qualify.

Claiming The ERC Refund

There are two ways to apply for ERC: complete and submit corrected tax forms to the IRS or hire an ERC professional.

If you go the do-it-yourself route, you’ll complete and submit IRS Form 941-X to the IRS. This is a more time-consuming option that requires you to calculate the ERC refund. But the extra work means that you don’t have to pay any fees out of your refund.

You can also hire an ERC company, tax pro, or accountant. For a fee, these experts will help you claim your ERC refund. For busy business owners, this small fee may be worth bypassing the time and frustration of filing tax forms on your own. ERC companies provide other benefits, including audit protection, maximum refund calculations, and additional tax and funding services.

Does The ERC Have To Be Paid Back?

Because the ERC is a refundable tax credit and not a loan, it does not have to be repaid. Once you file your amended tax return with the IRS and survive the long ERC processing times, you’ll receive your ERC tax credit refund via check or direct deposit.

The Bottom Line On ERC Grants & Business Funding

Although there are no ERC grants, there is the ERC tax credit which can give you up to $26,000 per eligible employee. Like a grant, ERC funds don’t have to be repaid. They can also be used for any purpose, whether you’re still recovering from the pandemic or you’re ready to grow your business.

If you haven’t claimed the ERC yet, you aren’t too late. Claims for 2020 must be submitted by April 15, 2024, while claims for 2021 must be submitted by April 15, 2025. Even though you still have time to beat the ERC deadlines, don’t delay. Make sure you claim your funds as soon as possible to avoid missing out on this potentially lucrative tax credit.

If you don’t qualify for the ERC or are looking for a true grant, check out the top grants for small businesses, or take a look at specific grant programs like the best grants for women or the best grants for minorities.

ERC Grant FAQs