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What is an ERC Advance Loan?

An ERC advance loan, or ERC bridge loan, is a service by private lenders which helps companies receive funds up front in exchange for their ERC credit. The lender gives you the cash now (minus a fee for their service) and they receive your ERC credit from the IRS. 

 

If this is all going over your head, let’s start with a quick explanation of the employee retention credit. 

What is the Employee Retention Tax Credit?

The Employee Retention Credit (ERC) or Employe Retention Tax Credit (ERTC) is a valuable tax credit introduced by the Internal Revenue Service (IRS) as part of COVID-19 relief measures. It aims to provide financial support to eligible businesses that have been adversely affected by the pandemic, encouraging them to retain their employees and continue operations.

 

To be eligible for ERC, companies must meet specific criteria such as experiencing revenue decline or full/partial suspension due to government orders. The IRS provides detailed guidelines on qualifying conditions which should be carefully reviewed before applying. 

 

Traditionally, companies would claim their ERTC through filing quarterly employment tax returns or requesting an amended return from previous quarters if they missed out initially. The main issue with this, and why ERC advance loans exist, is that claiming the ERC refund from the IRS often takes many months and sometimes up to a year. 

 

That’s where the ERC advance loan comes in. It’s called an ERC “advance” or ERC “bridge” loan because it’s basically an advance on your ERC refund. 

So How Does an ERC Advance Loan Work?

Private lenders specializing in providing ERC advance loans act as a bridge by purchasing a company's expected future employee retention credits at their present value, minus any applicable fees charged during disbursement. By doing so, they offer quick liquidity solutions that are essential for businesses that cannot afford to wait for the standard approval process from the IRS. Here's how the process unfolds:

1. Assessment of Eligibility:

Before committing to an ERC advance loan, both the lender and the borrower conduct a thorough evaluation of the company's qualifications for the ERTC program. If you have filed or are in the process of filing, you probably already know if you’re eligible or not. 

 

This involves an examination of payroll records, employee retention strategies, and financial standing. Documentation such as tax forms, employment records, and proof of economic hardship may be required. Lenders will want to verify that you are indeed eligible and there are no foreseeable issues with your credit, as they are the ones who will end up receiving it in the future.

2. Filing for ERC

Briefly describe your degree and any other highlights about your studies you want to share. Be sure to include relevant skills you gained, accomplishments you achieved or milestones you reached during your education.

3. Agreement on Terms:

If you are working directly with a lender, you will have to go through the process with each one of these lenders to find out the rate they may charge and the time it will take to get funds. This can be a long process, and you may not be able to negotiate a lower fee. If you go through Open Advisor, we already work directly with 14+ lenders, so we can negotiate lower fees and get your funds to you quicker than if you reached out directly.

4. Disbursement of Funds:

After the agreement is finalized, the lender disburses the funds to you. This process can take several weeks or longer if you are working directly with a lender. Finding a lender through Open Advisor ensures you close more quickly, typically under 2 weeks. Once you get your funds, the process may be complete or depending on the terms of your agreement you may still be paying interest.

What is a Typical Fee for an ERC Advance Loan?

There is no one set way that every lender handles an ERC loan. An ERC company or lender will give you some portion of the dollar amount of your refund. There is a straightforward ERC “buyout” where the lender gives you the full amount of the credit, after taking their fee, usually somewhere between 10-15% and then the transaction is over. The lender effectively buys your ERC credit and they get it when the IRS processes it. 

 

Another structure of these ERC advance loans is well, more like a traditional loan. An ERC company or lender might give you something like 50% of the amount of your credit as the loan, then charge you interest on that loan. You would pay them interest (probably somewhere between 10-30%) and then when you receive your full ERC refund, you pay the company back the money they lent to you, and you keep the remainder of the refund. In this case you would use 50% to pay them back and keep the other 50%. The structure of these loans differ and the best option for you can vary depending on your specific circumstances. 

How Long Does it Take to Get Funds?

The IRS takes around 8-12 months to process an ERTC refund, but you can typically get an ERC advance loan in 4 weeks. If waiting a month still seems too long, Open Advisor may be able to help. We work directly with lenders so we are able to reduce that time to around 2 weeks or less.

What Are The Overall Pros and Cons to an ERC Advance Loan?

Through the ERC advance loan process, businesses can quickly get access to much needed capital without the uncertainty and delays associated with the traditional IRS process. While this solution can be considerably quicker, it's also essential for companies to carefully consider the terms, costs, and potential risks, possibly with the guidance of financial or legal experts. 

 

Using Open Advisor’s unique comparison service can significantly streamline the process by offering businesses the ability to compare offers from various lenders. By filling out a simple contact form, Open Advisor identifies the best lender for you and ensures that you get your funds quickly. This not only saves time and money but also gives you peace of mind that your loan process is being handled correctly compared to what might otherwise be a more complicated, lengthy, and anxiety filled process on your own.

Tips When Considering to Apply for an ERC Advance Loan

Each situation is different, and you should consider the accounting, legal, and business implications when applying for an ERC advance loan. Here are some tips to help you make the right long term decision for your company.

 

  • Seeing how much a lender might pay you for your ERC credit can make it tempting to instantly take an offer, but you must consider not only the short term benefits, but understand what you are giving up, and whether you truly need the money now, or could afford to wait.

  • The terms of each situation can be different depending on your circumstances, the macroeconomic environment, and especially the lender you work with. It’s important to compare your options to make sure you’re getting the best deal.

  • Stay up to date on any actions taken by the IRS that they announce on their ERC page

  • If you’re trying to complete this process as soon as possible, start gathering your documents. This might take longer than you think, and lenders will want to make sure everything is in order before making you an offer.

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