Employee Retention Tax Credit
Across the web on internet forums such as Reddit, business owners accustomed to telling ERC filing war stories are starting to worry that their checks might not be coming any time soon.
“I spoke with an agent today. She said they received an organization-wide email to stop processing ERC for the time being,” one user reported at the end of August. Some users replied to say that it wasn’t true. But it is.
On July 26, IRS Commissioner Danny Werfel said that the IRS had cleared its backlog of valid ERC claims and is now “intensifying compliance work and putting in place additional procedures to deal with fraud in the program.”
“The further we get from the pandemic, we believe the percentage of legitimate claims coming in is declining,” Werfel said.
The IRS later confirmed to the Wall Street Journal that it had in fact slowed its processing of claims. There’s some truth in the assertion that the IRS had cleared out a major backlog before doing this.
In late June, for example, those same internet forums were abuzz with happy check recipients and a rush of optimism that the era of long processing wait times was coming to a close. The shift in sentiment had implications. For Finance ERC, a company that provides business owners with cash upfront in return for buying their future ERC receivables, the impact was immediate.
“[Early in] the summer we saw tremendous demand in our origination levels, April, May, and June, of companies coming to us with the mindset that the IRS was taking too long so they wanted to sell their ERC credit rather than wait,” said David Goldin, a Managing Member of Finance ERC. “And then we saw in our portfolio, which is large checks flowing in from the IRS all at once over the summer, and then we saw our demand for new customers fall off a cliff.”
The IRS cranking out checks had made people reconsider not wanting to wait.
“Psychologically, customers then would say, ‘why would I finance it, I’m going to be getting my check any day, my friend got his check, this one got his check…'”
But since then IRS checks slowed to a crawl, intentionally. And for all the talk about clearing the backlog, there were still 637,000 unprocessed 941-X forms (adjusted quarterly tax forms necessary for the credit) as of September 6th, not to mention that under current law, 2020 tax returns can be amended until April 2024, and 2021 returns can be amended until April 2025.
On September 14th, the IRS upped the ante of a delay to a total pause for new claims. “New claims for the employee retention credit, or ERC, won’t be processed until at least 2024,” the WSJ reported. The headline leaves little room for misinterpretation: IRS Shuts Door on New Pandemic Tax Credit Claims Until at Least 2024.
All of which means that business owners are now back to the waiting game and potentially back to considering upfront solutions. For Finance ERC, the company saw interest suddenly pick up and then accelerate since the first WSJ story came out.
“So I’m not saying the day that article came out, but we’ve definitely seen a spike in demand,” Goldin said. “My thing would be that for anyone that was selling [ERC financing], to think about that again, or those that weren’t selling it and they’re feeling that the MCA market is struggling, it’s too competitive, this is a new opportunity.”
Goldin shared this prior to the news breaking that the delay of ERC payouts had completely paused. Presumably, it would only make businesses more interested in getting the financing.
As he previously told deBanked, Finance ERC’s product requires no payments, can be eligible for up to 4-6x of what they would otherwise qualify for with an MCA, and can get it at a fraction of the cost of an MCA. But offering it can’t be done as an afterthought, he explained, even if you’re a big company with a big merchant portfolio.
“…you send out one or two emails you might as well not even send them out at all,” Goldin said.” Unless you’re actually embracing the product in your ecosystem, you know, drip marketing, follow up, you literally have to have a separate team selling it or it won’t work. But the guys that have done it, I know a few MCA guys that have, they’ve crushed it on both filing and funding. They’ve set up a separate group, separate sales guys, and they’re really killing it.”
And so the previous frontier of financing the ERC could now also be the next frontier yet again because of what’s taking place. On one subreddit, now that the reality is setting in, the tone has shifted.
“Has anyone tried contacting their state representative about the delay in refund?” The user began. He then adds that he’s already been waiting a whole year.
2023 has ushered in a new era of value-added products for sales agents. The Employee Retention Tax Credit (ERTC) is one major example. Another is a throwback to earlier times in the working capital space, merchant accounts. On May 8th, several industry veterans will convene at the Hilton Midtown in New York City to educate sales agents on these opportunities. It’s all happening at Broker Fair from 3:20 – 4pm for the ERTC and Other Value Added Products panel. If you’re registered for this event, it’s one session you won’t want to miss!
You just received a call from one of your favorite merchants saying they had “good news” and “bad news.” When you asked what the “good news” was, they said they had just filed for their ERC refund claim and were getting back $550,000. When you asked what the “bad news” was, they said they wouldn’t be getting the check from the IRS for 6 to 12 months, and needed $120,000 to cover their payroll in 5 days. WHAT WOULD YOU DO?
If all you simply said was “no problem- send me a few banks and we’ll take a look at getting you a position,” that would be WRONG! Why? Because you’d be LEAVING $$MONEY ON THE TABLE! Here’s why:
After you have helped Mr. Merchant solve his payroll problem by getting him a position, he’ll keep asking around until he finds “someone else” who can help solve his “other” problem which is HOW TO “monetize” his ERC refund claim and convert it to CASH!
Let’s take a quick look and see how much money you’d be “leaving on the table”- at minimum!
But before we do, let’s look at what you SHOULD HAVE said to Mr. Merchant. Something along the lines of, “thanks for reaching out because we ACTUALLY have a “two-part SOLUTION” for you. The first thing we’re going to do is look at a position to help cover your payroll.
Then, we’re going to bring in our ERC Funding Specialist to identify options for converting your ERC refund claim to CASH, instead of you having to wait 6 to 12 months for the check from the IRS. We only charge a nominal 2% PS fee which we don’t collect until AFTER you’ve been funded. Fair enough?
Plus, we’re ALSO going to arrange an early pay discount on your position in case you elect to use some of the proceeds from the ERC to pay it off early. The savings alone will help reduce your financing costs.
Now let’s take a look and see how much money you’re leaving on the table. First of all, assuming you make 10 points on the position, on $120,000 you’d make $12,000.
Now let’s look at ERC financing. Your PS Fee of 2% on $550,000 would equal $11,000, almost as much as you’d make on the position, and BEFORE adding any referral commission on the ERC side!
In other words, if you simply took “LESS THAN 5 MINUTES” to tell Mr. Merchant you have a 2-Part Solution versus one, you could potentially DOUBLE your money on the deal, right? RIGHT!
But here’s the question: how do you know what ERC funder is the “best fit” for Mr. Merchant? And what questions do you need to ask to make that determination? (Topic of one of my future articles)
The bottom line is, just like with MCAs where one size “doesn’t fit all” – which is why you typically work with more than one funder – ERC funding works the same. Why not apply the same rule?
But here’s the real dilemma: you have a stack of deals on your desk right now and simply don’t have time to identify ERC funders, and even if you did, you don’t have time to become an “instant expert” and know what questions to ask! So now, WHAT DO YOU DO?
One option is to work with a “trusted” ERC Funding Specialist. These are professionals who not only have the ERC funding relationships but know how to pre-qualify Mr. Merchant to determine which ERC funder is the best fit. In addition, they work with all parties “in the weeds” through underwriting, due diligence, final approval, and funding. In a nutshell, while obviously, they can’t guarantee ERC funding no more than you can guarantee MCA approval, the odds of getting the deal across the finish line are typically greater, particularly when there are issues with approval.
And all YOU have to do is two things; (1) TAKE 5 MINUTES OR LESS to tell Mr. Merchant about your two-part solution and can GET PAID when they get funded and (2) ask EVERY OTHER lead, prospect, and client the SAME QUESTION- “By the way, have you already applied for your ERC refund?” and if so, ask “would you like to get your refund now versus 6 to 12 months later?”
And if they haven’t applied yet or have questions about the ERC, tell them you can arrange a 15-minute call to determine their eligibility.
BOTTOM LINE- If you don’t “ask for the order you’ll never get it,” and it only takes “5 MINUTES OR LESS to do so.”
Like many business loan brokerage CEOs across the US, Jared Weitz is familiar with the Employee Retention Credit (ERC). His company, United Capital Source (UCS), which in 2021 surpassed $1B in small business financing volume, regularly speaks to thousands of small business owners. Weitz told deBanked that through his own experience most business owners have become sufficiently aware of the ERC as well. That in turn raises the question of what role a company like UCS can play in the ERC process.
“We have a few different referral partners that are lending against those credits,” Weitz said. “And that’s what we’re doing.”
In that regard, UCS is doing what it is already used to doing, connecting the business owner with a compatible source of funding. While other brokers may attempt to generate fees by assisting businesses with filing for the tax credits themselves, Weitz said he prefers to avoid the headache and/or potential liability that can come along with doing that.
“We’re able to get 100% of what a client is owed right up front,” Weitz said. “They can either have an interest-only program or a no-payments program for 12 months, and then after 12 months there would be a factor rate attached to the program that would be paid back weekly.”
UCS earns a commission when a deal goes through but ERC has not by any means become a primary driver of business, according to Weitz. Rather, it’s something that could come up during a customer consultation.
“When we’re peeling back the layers and chatting with the client on why they need funds, if they say ‘well, actually I’m falling short here and I also just filed for [the ERC] and I’m still waiting for that,’ it can be one of the options that we offer them […] and we’ll just see what they qualify for and if they’re interested in it.”
It’s the waiting part that is creating a cottage industry around ERC. Weitz says he hasn’t heard of any business getting an ERC refund in less than 7 or 8 months and he is aware of at least one business that is still waiting for it 2 years later since filing. But just because most businesses are aware of the ERC doesn’t mean they’ve all actively pursued it. On this, UCS simply offers free helpful advice.
“What I would say to them is ‘hey, heads up, you should probably look into this with your local accountant and payroll company, make sure you get your tax attorney or your accounting firm’s attorney involved just to make sure you’re doing it the right way.'”
Putting business owners on that path of pursuit, informing them of its existence and advising them to seek out qualified counsel to assist with it, generates no revenue to UCS, but Weitz thinks it’s important to help business owners in any way possible.
“I think it does build a bridge of trust a bit more between you and your clients because you’re showing them that you’re not solely looking at products that are beneficial to you, and you shouldn’t be doing that anyway,” Weitz said. “But I think when you’re dealing with someone there’s always that thought in their head, right? And so this has helped solidify that you’re not.”
“I have never sold a product that has no daily, no weekly, or no monthly payments,” said David Goldin. That is until now, he explained, because of the Employee Retention Credit from the IRS that’s sweeping the country. Goldin’s new company, Finance ERC, that he co-founded with Newtek co-founder Jeffrey Rubin, is buying the future ERC receivables of small businesses that have filed for it. A key feature? No payments.
“You basically drop off the money, they don’t pay you out of cash flow, we get paid when the checks arrive,” Goldin said. “It’s an amazing offering.”
Goldin is no stranger to the SMB finance game. He is one of the reasons that the MCA product exists today in the United States. A documentary about it was the second most watched in all of 2022, for example. And he’s still a busy guy. One of his other businesses, Capify, finances small businesses on two continents every day.
“I’m busy in the morning with the UK and I’m busy at night with Australia, but I had a lot of free time during the day,” he said about how he was able to pursue yet another venture. “I approached Jeff and we were seeing that there was a gap in the market that the checks don’t arrive.”
The ERC, a potentially generous tax credit available to eligible businesses, has recently enjoyed greater awareness since it was included in the March 2020 CARES Act. Businesses that qualify can amend previous returns to receive a refund. Folks in the small business finance industry, already in direct communication with businesses about their financial needs, have taken notice.
Finance ERC won’t do the filing itself for a business. They have to had filed already to seek out the funding, which can go up to $1 million at present. It’s the waiting game between filing and actually receiving the refund that leaves merchants in a crunch. Goldin said the wait time is “best case scenario three months, worst case scenario a year plus.” And there’s no guarantee that the claims will be paid. That’s a risk they bear.
The deals come in from a variety of sources, business loan brokers, MCA platforms, ERC filing companies and more. The funding amounts can be significantly larger than an MCA and with no payments to be made, is incredibly competitive. A number of other financial service providers are charging a fee just for helping the businesses file for the credit in the first place, which in itself can be lucrative, but Finance ERC sticks just to the funding.
“We work with the funding companies, we work with the brokers, the various ISOs, it’s a great product,” Goldin said.
But the life span of the ERC is purportedly capped. Some experts say that businesses can only amend their 2020 tax return through April 2024 and their 2021 return through April 2025 [dyor]. But then that’s supposed to be it, allegedly.
“That presumes the government is not going to offer any future tax incentives,” Goldin said. “What we’re building at Finance ERC is a platform to finance tax credits. [The ERC] is the first credit.”
The opportunity, he explained, is preparing now for what may repeat often in the future.
“We put together the right players and vendors,” Goldin said. “We’ve hired a super senior management team.” It’s a system that includes sales, marketing, operations, finance, underwriting and more, to be prepared to scale.
But even in the present, opportunity abounds.
“The best estimates I’ve read are 5-6 million ERC are still eligible,” Goldin said. “People in this industry call it America’s best kept secret.”
And thus as marketing of the ERC continues to grow all around, Finance ERC is ready to work with businesses, brokers, and filers going through the process. Businesses can even use the funding from Finance ERC to pay the fee to file in the first place.
“So now all of a sudden they put the risk to me which I’m happy to do for a file that we like, and I pay the filing company / the broker gets paid right away,” Goldin said.