ERC Cash Advance: A Lifeline for Businesses Affected by COVID-19
The COVID-19 pandemic has caused unprecedented challenges for many businesses across the country. Some have experienced significant declines in revenue, while others have faced temporary or permanent closures due to government orders. To help these businesses survive and retain their employees, the federal government has enacted several relief programs, including the Employee Retention Credit (ERC).
What is the Employee Retention Credit?
The ERC is a refundable tax credit that allows eligible employers to claim a percentage of the wages they paid to their employees during the pandemic. The credit was initially introduced by the CARES Act in 2020 and was later expanded and extended by the Consolidated Appropriations Act in 2021 and the American Rescue Plan Act in 2021. Depending on the year and the quarter, the credit can range from 50% to 70% of qualified wages, up to a maximum of $5,000 to $26,000 per employee per year.
What is ERC Cash Advance?
While the ERC can provide substantial savings for businesses, there is a catch: the credit is claimed on the employer's quarterly federal tax return (Form 941), which means that the employer has to wait until the end of the quarter to file the claim and receive the refund from the IRS. This can take several months, or even longer if the IRS delays or audits the claim. For businesses that need cash flow urgently, this waiting period can be detrimental.
That's where ERC Cash Advance comes in. ERC Cash Advance is a financing option that allows businesses to access their ERC refund in advance, without waiting for the IRS. ERC Cash Advance is not a loan, but rather a purchase of the employer's tax refund by a third-party lender. The lender pays the employer a portion of the expected refund (90%) within a few weeks, and then collects the full refund from the IRS when it is issued.
How does ERC Cash Advance compare to other financing options?
ERC Cash Advance is different from other financing options in several ways. First, ERC Cash Advance does not require any collateral, credit check, or personal guarantee from the employer. The only requirement is that the employer qualifies for the ERC and has sufficient payroll taxes to offset the credit. Second, ERC Cash Advance does not incur any interest or debt for the employer. The employer only pays a one-time fee to the lender, which is usually lower than the interest rate of a traditional loan. Third, ERC Cash Advance does not affect the employer's eligibility for other relief programs, such as the Paycheck Protection Program (PPP), the Restaurant Revitalization Fund (RRF), or the Shuttered Venue Operators Grant (SVOG). The employer can still apply for and receive these funds, as long as they do not use the same wages for both the ERC and the other programs.
Who is eligible for ERC Cash Advance?
To be eligible for ERC Cash Advance, the employer must first qualify for the ERC. The eligibility criteria for the ERC vary depending on the year and the quarter, but generally, the employer must meet one of the following tests:
The employer's business was fully or partially suspended by a government order due to COVID-19 during the quarter; or
The employer's gross receipts for the quarter were less than 50% (for 2020) or 80% (for 2021) of the gross receipts for the same quarter in 2019.
In addition, the employer must have paid qualified wages to its employees during the quarter. Qualified wages are wages that are paid to employees who are not working (due to the suspension or reduction in business) or who are working at a reduced capacity (due to social distancing or other health and safety measures). The amount of qualified wages depends on the size of the employer, which is determined by the average number of full-time employees in 2019.
To apply for ERC Cash Advance, the employer must also provide the following information and documentation to the lender:
The employer's name, address, phone number, email, and tax identification number;
The employer's payroll records for the relevant quarters, showing the amount of wages paid to each employee and the amount of payroll taxes withheld and deposited;
The employer's Form 941 for the relevant quarters, or a draft of the form if it has not been filed yet;
The employer's calculation of the ERC amount for the relevant quarters, based on the eligibility criteria and the qualified wages;
The employer's bank account information, where the advance funds will be deposited.
What are the benefits of ERC Cash Advance for businesses?
ERC Cash Advance can provide several benefits for businesses that are struggling with cash flow issues due to the pandemic. Some of these benefits are:
Immediate access to funds: ERC Advance can provide businesses with cash in as little as one to four weeks, compared to the six to nine months (or longer) it takes to receive the refund from the IRS. This can help businesses cover their payroll, rent, utilities, inventory, and other expenses, and avoid layoffs, closures, or bankruptcy.
No collateral, credit, or debt: ERC Cash Advance does not require any collateral, credit check, or personal guarantee from the business. The business only sells its tax refund to the lender, and does not incur any interest or debt. This can help businesses preserve their credit score, assets, and equity, and avoid the risk of default or foreclosure.
No impact on other relief programs: ERC Cash Advance does not affect the business's eligibility for other relief programs, such as the PPP, the RRF, or the SVOG. The business can still apply for and receive these funds, as long as they do not use the same wages for both the ERC and the other programs. This can help businesses maximize their savings and recovery potential.
How have businesses benefited from ERC Cash Advance?
ERC Cash Advance has helped many businesses overcome their cash flow challenges and take advantage of the ERC. Here are some examples of businesses that have used ERC Cash Advance and how it has impacted their financial situation:
A restaurant chain with 15 locations and 300 employees was forced to close or limit its operations due to COVID-19. The business qualified for the ERC and expected to receive a refund of $1.2 million for 2020 and 2021. However, the business needed cash immediately to pay its rent, suppliers, and employees. The business applied for an ERC Bridge Loan and received $1.08 million (90%) within three weeks. The business used the funds to cover its expenses and avoid layoffs. The business also received a PPP loan of $500,000, which was forgiven.
A manufacturing company with 50 employees and $10 million in annual revenue suffered a 60% drop in sales due to COVID-19. The business qualified for the ERC and expected to receive a refund of $400,000 for 2020 and 2021. However, the business needed cash urgently to purchase raw materials and equipment. The business applied for ERC Cash Advance and received $360,000 (90%) within two weeks. The business used the funds to resume its production and meet the demand from its customers.
How can Swift SBF help you with ERC Cash Advance?
If you are interested in ERC Cash Advance, SwiftSBF can help you navigate the process and get the funds you need. SwiftSBF is a leading provider of ERC Cash Advance and other financing solutions for small businesses. SwiftSBF has the expertise, experience, and resources to help you:
Determine your eligibility for the ERC and ERC Cash Advance;
Calculate your ERC amount and optimize your tax savings;
Prepare and submit your ERC claim and ERC Cash Advance application;
Receive your advance funds in your bank account within weeks;
Resolve any issues or questions with the IRS or the lender;
Access other relief programs and financing options that suit your needs.
ERC Cash Advance is a valuable option for businesses that need cash flow quickly and want to take advantage of the ERC. ERC Cash Advance can provide businesses with immediate access to funds, without requiring any collateral, credit, or debt. ERC Cash Advance can also help businesses save money, retain employees, and recover from the pandemic. However, ERC Cash Advance also has some risks and considerations, such as reduced refund amount. Businesses should weigh the pros and cons of ERC Cash Advance and consult with a professional before applying.
