What Is An ERC Loan?

The Employee Retention Credit (ERC) could put thousands of dollars back into your business, but waiting a year or longer for these refunds isn’t feasible for many small business owners. Fortunately, there is a solution for cash-strapped businesses that need funding now: ERC loans. If you’re wondering what is an ERC loan and how does it work, you’re in the right place.

In this post, we’re going to discuss ERC loans, including how they differ from traditional ERC, who qualifies, how to apply, and where to get an ERC loan. If you’re ready to claim ERC but don’t have time to wait for funds, keep reading to learn more about ERC loans and if this funding option is right for you.

Ready to dive straight into ERC loans? Start your search with our six best ERC loans to get funded in as little as 72 hours.

What Is An ERC Loan? The Quick Answer

Businesses that have claimed the Employee Retention Credit may be eligible to receive an ERC loan. An IRS backlog of ERC claims has left some business owners waiting 12+ months to receive their ERC refunds. In response, some lenders are providing ERC loans or advances that give ERC recipients faster access to capital.

After filing a valid ERC claim with the IRS, businesses can apply for an ERC loan or advance from a reputable ERC lender. With an ERC loan, businesses can receive funds in as little as two to three business days.

ERC Loans VS ERC Funding

ERC loans and ERC funding are two terms that are often used interchangeably.

An ERC loan is an advance payment for an ERC refund. An ERC loan is ideal for businesses that don’t have months to wait for an IRS refund check.

The term ERC funding may also refer to ERC loans or advances. Generally, though, this term is simply referring to the ERC refundable tax credit program.

The ERC is not a loan and does not need to be repaid.  The timeline for ERC refund processing is typically four to 12 months or longer, which is why some ERC companies now offer ERC loans and advances.

Where Can I Get An ERC Loan?

Many third-party specialty tax companies offer ERC loans or advances. If you used a third-party ERC company to claim your refund, inquire about available funding options.

If you claimed the credit yourself or your ERC company doesn’t have an ERC loan or advance program, there are options available. Companies like Omega Funding Solutions and United Capital Source provide advanced funding to eligible borrowers, even to businesses that didn’t use them to claim their ERC refunds.

Does The IRS Have An ERC Loan Program?

While the IRS does process ERC refunds, the IRS does not have an ERC loan program. Only third-party companies provide ERC loans or advances to give small business owners faster access to funding.

Who Qualifies For An ERC Loan?

Small businesses that have claimed an ERC refund may be eligible for an ERC loan. Most lenders will look at a few key factors to determine if someone qualifies for an ERC loan and the amount they’re eligible to receive. ERC loan qualifications include:

• Whether a valid ERC claim was filed with the IRS
• The amount of the ERC claim

Unlike other types of loans, these two factors may be all you need to qualify for an ERC loan. However, some lenders may look at additional factors including:

• FICO score
• Credit report
• Business revenue

ERC Loan Fees

Unfortunately, most ERC companies aren’t very forthcoming when it comes to details like loan fees, rates, and repayment terms. Generally, you can request a free consultation, and there are typically no application fees.

The details of your ERC loan will be disclosed before your loan is funded. One thing to note is that your ERC loan fees are charged in addition to any fees you paid to claim your ERC.

For example, if you use a third-party company to claim your ERC, you typically pay a contingent fee (generally 10% to 25% of your refund amount) to have your claim prepared and filed with the IRS. If you don’t want to wait to receive your refund check and apply for an ERC loan, you’ll be required to pay additional fees and/or interest for the amount that you borrow.

Before you hire an ERC company, learn more about ERC fees and how they affect your refund.

How To Apply For An ERC Loan

The process for applying for an ERC loan varies by lender. However, in general, you should expect to take the following steps:

• File your ERC claim with the IRS
• Research companies that offer ERC loans & advances
• Submit basic information for a free ERC loan analysis
• Provide additional information & documentation to determine if you qualify (and if so, for how much)
• Receive a loan decision
• Review & sign your loan contract, which contains information including payment terms, fees, & interest rates
• Receive funds in your business bank account

Timelines, rates, repayment schedules, and other details vary by lender. To learn more about the ERC loan application process, check out our post about how to apply for ERC loans.

ERC Loan Deadlines

While there isn’t a set ERC loan deadline, there are a few key points to keep in mind if you don’t want to miss out on funding.

In order to receive an ERC loan, you must file a valid ERC claim with the IRS. There are set deadlines for filing your ERC claim:

• The deadline to claim funds for qualifying periods in 2020 is April 15, 2024.
• The deadline to claim funds for qualifying periods in 2021 is April 15, 2025.

You will be unable to receive a refund if you do not file your claim with the IRS by these deadlines.

If you’re working with an ERC company, make sure that you provide all documentation and information before the deadline to give the preparer time to complete and file your amended return.

Another thing to keep in mind is that lenders may opt to end their ERC loan programs, even prior to the IRS filing deadlines. If you qualify for ERC and plan to get an ERC advance, start planning now and don’t wait until the last minute to file.

How To Repay Your ERC Loan

Before signing your loan contract, your ERC lender should go over repayment details. Generally, repayment will begin after funds are disbursed, with a balloon payment due after you receive your refund check.

Instead of loans, other companies may purchase your ERC refund outright. If you work with Valiant Capital, for example, you pay a small percentage of your refund amount, including a holdback. Once the refund check has been received, the holdback is returned to you. This option provides you with faster funding without monthly repayments and interest fees.

The Bottom Line On ERC Loans

While ERC loans do come at a cost (in the form of interest or fees), this service could be invaluable for companies that need to boost cash flow while waiting for their ERC refunds. If an ERC loan seems right for you, make sure to compare costs across reputable ERC companies, review all contracts and paperwork, ask questions, and compare your options to find the ERC loan that works best for your business.

Don’t qualify for ERC but need business capital? Check out our picks for the best small business loans and the best business lines of credit to find the funding you need for your business.

FAQS About ERC Loans