The Ultimate Guide to ERC Bridge Financing

Learn about the benefits, eligibility criteria, application process, and other considerations for ERC Bridge Financing in this guide.
The Ultimate Guide to ERC Bridge Financing 2023 Edition Illustration

As small businesses confront ongoing challenges like cash flow shortages, supply chain issues, high-interest rates, and limited access to capital, the Employee Retention Credit (ERC) has emerged as a valuable resource. However, the IRS takes up to eight months to process employers’ ERC claims.

In this article, we will explore the benefits and applications of ERC Bridge Financing — a loan product that gives employers immediate access to their ERC funds without waiting on the IRS.

What is the Employee Retention Credit (ERC)?

The ERC is a refundable tax credit program introduced under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in 2020 as an incentive for employers to continue paying their employees during the COVID-19 pandemic.

Eligible employers include those who received local, state, or federal government orders for a complete or partial shutdown or experienced a significant decline in gross receipts. For Q2, Q3, and Q4 of 2020, the decline in gross receipts must have been at least 50% compared to 2019. For Q1, Q2, and Q3 of 2021, the decline in gross receipts must have been at least 20% compared to 2019.

The value of the ERC for Q2, Q3, or Q4 of 2020 is 50% of up to $10,000 in wages paid per employee. The total for the 2020 year is capped at $5,000 per employee. As for Q1 – Q3 of 2021, the value of the ERC is 70% of up to $10,000 in wages paid per employee. The total for the year is $21,000 per employee. This brings the total value of the ERC to $26,000 per employee.

The IRS applies the credit to the employer’s portion of social security tax and treats the excess as an overpayment.

What is ERC Bridge Financing?

ERC Bridge Financing is a specialized loan product designed for employers that are eligible for the ERC program and have submitted an ERC claim with the IRS. With ERC Bridge Financing, also called an ERC Advance Loan, employers can receive a cash advance on a portion of their ERC funds. Employers that qualify will submit to interest-only payments each month until the IRS issues their checks, or a complete buyout of their ERC claim in exchange for a percentage-based fee. Rates and terms will vary by lender and employer qualifications.

Skip the IRS’s Processing Time with ERC Bridge Financing

With ERC Bridge Financing, employers can access up to 85% of their ERC refund right away.

Benefits of ERC Bridge Financing for Employers

For many small business employers, the ERC is a substantial amount of capital that could be put to good use now. However, the IRS stipulates a wait time of four to eight months, in some cases longer, to process employers’ claims and issue checks. ERC Bridge Financing solves this problem and provides several key benefits:

  • Improved Cash Flow: Employers’ immediate access to ERC funds can significantly enhance their business’s cash flow, allowing them to meet payroll demands, pay vendors, and invest in marketing or other growth opportunities.
  • Business Continuity: Employers’ businesses can maintain operations without having to lay off employees or scale back product or service offerings.
  • Employee Retention: The primary purpose of the ERC program was to incentivize employers to retain employees. By leveraging ERC Bridge Financing, employers ensure their businesses’ workforces remain intact so that productivity and morale are unaffected.
  • Potential Tax Deduction on Lender’s Fees: Some employers’ businesses may be able to offset lenders’ fees paid with ERC Bridge Financing through a tax deduction.

Eligibility Criteria for ERC Bridge Financing

To qualify for ERC Bridge Financing, businesses must meet lenders’ eligibility criteria, which may include the following:

  • Eligibility Under the IRS’s ERC Guidelines
  • Proof of ERC Claim Submission with the IRS
  • A Minimum ERC Claim Value of $75,000
  • Operating Since February 2020, or Earlier
  • Minimum FICO Score or Lien Assessment
  • A Positive Financial Track Record

How to Apply for ERC Bridge Financing

1. File an ERC Claim with the IRS

If you haven’t done so already, the first step is to file your ERC claim. Businesses can file independently or through a credible third party like 1st Capital Financial. To file your ERC claim with 1st Capital Financial, simply start an ERC application online or schedule a complimentary ERC consultation.

2. Find a Suitable Lender

ERC Bridge Financing is not available through traditional banks or many small business lenders. Be sure to research lenders that offer ERC Bridge Financing and thoroughly examine their credentials. To apply for ERC Bridge Financing with 1st Capital Financial, submit an ERC Financing Application online.

3. Gather Documentation

  • A Completed ERC Financing Application (If Applying through 1st Capital Financial)
  • Third-Party ERC Agreements and Calculations (If Applicable)
  • IRS Form 941s and IRS Form 941-Xs for Each Quarter Claimed
  • IRS Form 8821 and 7216 Consent Form
  • Most Recent Income Tax Return
  • Previous Three Months’ Bank Statements
  • Identification (e.g., Driver’s License or Passport) for All 20% or Greater Shareholders

The following documentation may also be requested following the lender’s approval and before funds are released:

  • IRS Form W-9 for the Authorized Signer
  • Copy of Business’s Operating Agreement
  • Voided Check from the Business’s Primary Checking Account

4. Consult with an ERC Financing Expert

If applying through 1st Capital Financial, our ERC Financing Team will contact you to discuss your application, the timeline to receive funds, the loan amount you qualify for, and any associated fees. We also encourage our clients to reach out anytime if they have questions.

5. Accept Loan Terms and Receive Funds

Once your application is approved and you have accepted the terms, funds will typically be released within 24 hours. Some banks can take up to three business days.

Other Considerations for ERC Bridge Financing

Unlike the ERC, ERC Bridge Financing is a type of loan. All lenders require extensive documentation and due diligence. This may extend to background checks for liens, UCC filings, outstanding tax debts, and criminal activity.

FAQs About ERC Bridge Financing

Funds will typically reach a business’s bank account within 24 hours once approved, but it can take up to three business days, depending on the bank.

ERC Bridge Financing proceeds can be used for any business expense. Unlike other COVID-19 relief programs, there are very few restrictions regarding businesses’ use of their refund.

In most cases, the following three factors determine whether a business will qualify for an ERC Bridge Loan or ERC Claim Buyout:

  1. The business must have submitted a valid Employee Retention Credit (ERC) claim of $75,000 or higher with the IRS.
  2. The business must have been operating since at least February 2020.
  3. The business owner, or the business, must meet credit approval or lien assessment requirement.

IRS processing for the Employee Retention Credit (ERC) can take up to ten months. This timeline is too long for businesses tackling rising inflation, higher interest rates, and limited access to capital. ERC Bridge Financing allows businesses to access their refund in days and use it wherever it’s needed.

Employee Retention Credit (ERC) Bridge Financing refers to 1st Capital Financial’s solution for businesses that do not want or cannot afford to wait for the IRS to process their ERC refund. By applying for an ERC Bridge Loan or an ERC Claim Buyout, businesses can advance up to 85% of their refund in a matter of days.

Final Thoughts on ERC Bridge Financing

The ERC and ERC Bridge Financing are a compelling combination for financial support to those that qualify. By understanding the benefits, eligibility criteria, application process, and other considerations, businesses can make an informed decision about whether ERC Bridge Financing is right for them.

1st Capital Financial has served over 85,000 small businesses, delivered over $100 million in funding, and recovered over $10 billion in ERC refunds since the start of the COVID-19 pandemic. The company’s ERC Filing Service, ERC Bridge Financing, and ERC Partner Programs are available to any businesses that wish to apply.

Ready to Apply for ERC Bridge Financing?

Apply online in less than four minutes. There’s no upfront cost, commitment, or impact on credit to get started.

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1st Capital Financial and its affiliates assume no liability for actions taken in reliance upon the information contained herein.

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The 1st Capital Team
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The 1st Capital Team is comprised of seasoned small business experts and content marketing professionals adept at gathering the best and most accurate information and resources available for its readers.

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