Employee Retention Credit (ERC) Guide: Application and Loans

The Employee Retention Credit (ERC) is a lifeline for small businesses impacted by Covid-19. But it’s only for businesses that suffered significant losses in revenue and kept employees on the payroll while closed or partially closed during 2020 and/or 2021.

Here’s a closer look at what the ERC is and how loans and advances work.

What is the Employee Retention tax credit, and how much can I claim?

ERC loans vs ERC advances

It’s important to understand that ERC loans and ERC advances are different products that each offered ways to access your ERC refund faster once you’d been approved. The difference is that an ERC loan is a bridge loan against your ERC refund, while an ERC advance is a buy out, aka “advance” on your ERC credit for a fee.

In both cases, you pay off the loan or advance when you get your ERC refund. Here’s a closer look at how each works.

ERC loans

ERC loans are essentially bridge loans that charge monthly interest against your loan amount. On top of this monthly rate, some lenders may also charge an origination fee or closing costs of around 5%. ERC loans are underwritten and may have certain credit score requirements.

Here’s an example of how an ERC loan works:

ERC credit owed to you: $100,000
ERC loan-to-value (LTV): 70%
ERC loan amount: $70,000
ERC loan interest rate: 2% a month
Repayment term: 12 months
Monthly repayment: $1,400 ($70,000 x 2%)

Total interest paid: $16,800 ($1,400 x 12 months)

As shown, your monthly payment would be $1,400 a month for a total of $16,800 in interest paid over the 12-month repayment period. When your ERC refund is issued, you pay off the loan with a balloon payment. The rest of the refund is yours to keep.

ERC advances

ERC advances are when a lender buys out, aka “advances,” your ERC credit for a fee. Unlike a loan, there are no monthly repayments and no interest charges. Based on our conversation with a broker at Peach Capital, ERC advances may cost around 10% of the total amount of your ERC advance and may be cheaper than getting an ERC loan.

Here’s an example of how it works:

ERC credit owed to you: $100,000
ERC loan-to-value (LTV): 70%
Advance amount: $70,000
Broker service fee: 5% of advance amount
Lender origination fee: 4% of advance amount
Lockbox fee: $475
Processing fee: $475

Total fees paid: $7,250 ($3,500 + $2,800 + $475 + $475)

In this example, you pay $7,250 in fees, or around 10% of the loan amount of $70,000. When your ERC refund is issued, you pay off the advance, and the rest of the refund is yours to keep.

Who an ERC loan or advance is best for

An ERC loan or advance was best for small business owners that:

• Have already filed a valid and trackable ERC claim with the IRS.
• Were still waiting to receive their ERC refund.
• Were willing to pay interest or a fee to get funds faster.

How much does an ERC loan or advance cost?

Costs can run between 10% to 30% of your ERC loan or advance amount. The broker we spoke with at Peach Capital said that getting an ERC advance may be cheaper than an ERC bridge loan, since you pay a fee of around 10% with an advance. This may be cheaper than paying monthly interest on an ERC loan, especially if the lender charges origination fees or closing costs.

ERC loan qualifications

• Be eligible for the ERC credit.
• Have a valid and verifiable ERC claim with the government.

With an ERC loan, the lender typically will look at your credit score and business income to determine your eligibility. But because ERC advances are essentially a “buy out” of your ERC refund, you generally don’t need to qualify with a credit score or income.

How to apply for an ERC loan

If you have a previously approved ERC claim and are considering a loan or advance, here’s how the process worked:

1. Prequalify with multiple ERC lenders to make sure you’re getting the best deal.
2. Submit a full application once you choose a lender.
3. Carefully read and understand the ERC loan/advance terms.
4. Wait for your ERC loan/advance to be processed and funded.
5. For ERC loans, make your repayments according to your loan terms.
6. Pay off the loan/advance in full when your ERC credit is refunded.

How to compare ERC loans

To find the best ERC loan for your situation, compare the following factors:

• Rates and fees. These vary by lender and, in some cases, your creditworthiness and income.
• Time to funding. Depending on the lender, you could have your loan/advance between three to 30 business days.
• LTV. You can typically borrow between 65% to 70% of your ERC refund amount.

Pros and Cons of an ERC loan

These are the main pros and cons to consider with ERC loans:

ERC loan alternatives

If you’d rather not sign over your ERC credit, here are some alternative sources of business funding to consider.

• Business loans. Business loans cover a wide range of financing needs. Choose from term loans, SBA loans, lines of credit and equipment financing, as well as merchant cash advances and invoice factoring/financing for businesses that need fast cash.
• Personal loan. If you’re a startup or struggling to meet minimum income requirements for a business loan, some lenders may allow you to use a personal loan to cover business expenses.
• Business credit card. A business credit card may be a good option for ongoing cashflow needs. It can help boost your business credit score while you get perks like points or cash back on your purchases.
• Grants. For free money you don’t need to repay, consider a business grant. Federal and state government agencies offer these, as well as private corporations, but they can be competitive.

How to apply for the ERC

The ERC program is now closed to new applications. The steps below are retained for reference for businesses reviewing past filings, handling audits or responding to IRS correspondence.

1. Determine your eligibility. The ERC program has strict requirements and is only for businesses whose revenues were significantly impacted by Covid-19 yet retained employees on their payrolls. To be eligible for the ERC, your business must meet these qualifications:
   • Have fewer than 100 employees.
   • Kept employees on the payroll during 2020 or Q1, Q2 and Q3 of 2021.
   • Was closed due to a government order — or — had revenue that declined by 50% in 2020 or by 20% in the first three quarters of 2021.
   • Qualified as a recovery startup business for the third or fourth quarters of 2021. Only recovery startup businesses are eligible for the ERC in the fourth quarter of 2021.
   • Cannot claim the ERC on employee wages that they reported as payroll costs for the purposes of obtaining PPP loan forgiveness or on wages used to claim certain other tax credits.
2. Gather the required documentation. When applying for the ERC, you may need all or some of these forms:
   • Forms 941/941-X — Employer’s Quarterly Federal Tax Return
   • Forms 7200 — Advance Payment of Employer Credits due to COVID-19
   • Form 8655 — Reporting Agent Authorization
   • Paycheck Protection Program (PPP) Applications and Forgiveness, if applicable
   • Financial statements for 2019, 2020 and/or 2021
3. File your application. Submit your ERC application, including filling out specific forms, attaching supporting documentation, and providing detailed information about your company’s activities. Double-check all your information is accurate and complete before submitting.
4. Collect your tax credit. Once the IRS processes your loan application, your tax credit should be issued, typically within two to eight months.

Because of the complexity of the rules for claiming the ERC and the possibility of error or oversight that could impact your business, you should consult with a qualified tax professional when filing an amended tax return.

When is the ERC deadline?

The ERC filing window is now closed. The deadline to claim funds for 2020 was April 15, 2024, and the deadline for 2021 was April 15, 2025. No new claims can be filed for either year. Additionally, a law passed in July 2025 disallowed any claims for Q3 or Q4 of 2021 that were filed after January 31, 2024. Businesses with previously filed claims should note that the IRS has up to six years to audit ERC claims, so keeping your documentation is still important.

Employee retention credit FAQs

What types of businesses could claim the ERC?

Corporations, partnerships, LLCs, sole proprietors and even non-profit organizations like charities, religious institutions and educational institutions can claim the ERC as long as they meet eligibility criteria.

Were there restrictions on claiming the ERC if my business received a PPP loan?

Yes, businesses that received a PPP loan could still claim the ERC credit, but with restrictions, such as not being able to claim the ERC for the same wages used to qualify for the PPP loan forgiveness.

Could an employer claim the ERC for wages paid to employees who are working remotely?

Yes, employers can claim the ERC for wages paid to employees who are working remotely, as long as they meet eligibility criteria.

To make sure you get accurate and helpful information, this guide has been edited by Holly Jennings as part of our fact-checking process.

Written by

Megan B. Shepherd

Editor, Loans & Insurance

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Megan B. Shepherd is a personal finance expert and editor for loans and insurance at Finder. Her personal finance expertise has been featured on Forbes, Nasdaq, MediaFeed, Fox News, Time, Reviews.com, and carinsurance.com, adding invaluable information related to personal loans, financial strategies and smart borrowing tactics. Megan graduated from the University of Texas at Dallas with a BS in Business Administration with an entrepreneurial focus. She's worked as a certified financial adviser and has earned certificates of completion from A.D. Banker & Company. See full bio

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