On Thursday, September 14th, 2023, IRS Commissioner Danny Werfel announced that the organization would halt ERC processing until the end of 2023, at a minimum, after receiving an influx of “questionable” claims.
The ERC, a small business tax break to help those financially affected by the COVID-19 pandemic, is potentially worth thousands of dollars per employee. More than 3.6 million claims have been filed to date, with 600,000 of them sent within the last six months.
The pause is concerning, to say the least, as some businesses have waited months to receive their funding. Joseph Camberato, National Business Capital’s CEO, warns businesses that “it might never come back” and that they should “seek alternative funding options immediately to mitigate any slowdowns in operations.”
What Is the ERC?
The Employee Retention Credit (ERC) is a refundable tax credit for small businesses with employees that were financially affected by the COVID-19 pandemic. Here are the qualifications, according to the IRS.
- Your business was shut down due to lockdown regulations during 2020 or the first three quarters of 2021, AND
- Your business experienced a qualifying loss in gross income during 2020 or the first three quarters of 2021, OR
- Your business qualified as a recovery startup for the 3rd and 4th quarters of 2021.
Each employee could yield up to $26,000 in government funds. Businesses could retroactively claim this credit for financial loss sustained during the relevant periods following the pandemic.
Why Did the IRS Halt ERC Processing?
The popularity of the ERC program swept the business landscape immediately, but not just because of the benefit to affected small businesses. Third-party organizations aggressively marketed the ERC credit in an effort to capitalize on the 5% to 25% broker fee that could come from successfully connecting a business to ERC funding.
These organizations cast a wide marketing net and spoke ambiguously about the qualifications, showcasing the amount of money they could receive more prominently than the eligibility criteria. Their deceptive advertising and false promise of funding created a massive problem for IRS claim adjusters, who needed to sift through the incoming applications and determine which businesses truly deserved the tax credit.
The IRS’ growing suspicions of deceptive third-party actions peaked on September 14th, when the commissioner announced that they would halt processing claims as they investigate the questionable claims. In their words, the pause will continue “at least until the end of 2023,” although National Business Capital’s CEO believes it will last much longer.
“I suspect the IRS isn’t going to bring this program back,” said Mr. Camberato. “If you didn’t get your claim in before now, you’re likely never going to be able to. I don’t think that window is ever going to open up again.”
Fraud is a significant concern across numerous federally funded programs. The IRS has 252 active investigations into the fraudulent activity, with 15 resulting in federal charges.
What Should Businesses Do to Bridge the Gap?
There’s a real possibility that September 14th marked the end of ERC processing forever, putting some companies in a financial bind.
“Although businesses should remain hopeful, it’s time to get realistic,” said Brian Chevalier-Jordan, Chief Marketing Officer of National Business Capital. “Some enterprises have waited over a year for their funding, and this recent decision makes it unlikely they’ll ever see that money. Businesses with growth plans should set up new funding sources to ensure they can meet their goals.”
Non-bank funding options have been a powerful resource for those waiting for their ERC to fund, especially under the current credit crunch. Banks have tightened their lending considerably over the last 18 months, but non-bank lenders have continued to help businesses achieve their goals and set their growth plans into motion.
If you’re waiting for the ERC, here are a few financing solutions you may find helpful.
|Type of Financing||Description|
|Business Line of Credit||Flexible financing to draw capital on an as-needed basis. Interest applies only to the amount drawn, not the total credit limit.|
|Term Loan||A lump sum of funds deposited into your business bank account. Borrowers repay the amount over a set schedule, with interest.|
|Revenue-Based Financing||Similar to a term loan, but the repayment process is different. Instead of an interest rate, you’re given a factor rate, and your payments are automatically deducted from your revenue until a pre-determined amount is paid.|
Contact National Business Capital to Explore Your Financing Options
The recent developments are disheartening to those waiting, but the ERC isn’t your only capital source. If you were counting on the ERC to help you achieve your 2023 goals, National Business Capital can help you stay on track.
As a Specialty Finance Group, our Business Finance Advisors leverage our fantastic lender relationships to connect our clients with the highest funding amounts they qualify for. We’ve financed more than $2 billion since 2007 and become market leaders in $100K to $5MM transactions.
Don’t wait around for the ERC. Complete our digital application to get started. Or, if you’d prefer to speak with our team about your specific circumstances, give us a call at (888) 488-4769.
Amanda is the Marketing Coordinator for National Business Capital. She’s a graduate of Ziklin School of Business at CUNY Baruch College and holds a B.A. in Advertising, Marketing, and Communications. Amanda has extensive experience creating content, directing outreach campaigns, and managing operations. She is passionate about small business and helping entrepreneurs reach new heights.