If your business filed for the Employee Retention Credit (ERC) and you're waiting on your refund from the IRS, you've likely heard about ERC buyouts. But what exactly are they, and how do they work?
Understanding ERC Buyouts
An ERC buyout is when a financial company purchases your approved ERC receivable, giving you immediate access to funds instead of waiting for the IRS to process your refund. Think of it as selling your future refund for cash today.
Here’s what makes it different from a loan: you’re not borrowing money. You’re selling an asset you already own – your IRS-approved ERC claim.
Why Business Owners Consider Buyouts
The primary reason is simple: time. The IRS is currently processing ERC refunds anywhere from 6 to 18 months after approval. For many businesses, that wait creates serious cash flow challenges.
Consider a manufacturing company that’s owed $500,000 in ERC refunds but needs capital now to purchase inventory, meet payroll, or invest in growth opportunities. Waiting over a year for that money can mean missing critical business opportunities or struggling with daily operations.
How the Process Works
The buyout process typically involves several steps. First, you submit your complete ERC documentation to the buyout company. This includes your filed 941-X forms, payroll records, and eligibility documentation.
Next, the company reviews your file for accuracy and compliance. They’re essentially verifying that your ERC claim is legitimate and likely to be paid by the IRS without adjustments.
Once approved, you sign a purchase agreement. At this point, you’re transferring ownership of your ERC receivable to the buyout company. They become the party that receives the refund when the IRS eventually pays.
Finally, you receive funding – typically a percentage of your total ERC value paid upfront, with additional amounts potentially paid later when the IRS releases the refund.
Discover the complete step-by-step ERC Buyout Option process in this blog
What Happens After the Buyout
After the transaction closes, the buyout company handles all future IRS communications regarding your ERC claim. This includes responding to any IRS notices, providing additional documentation if requested, and managing the collection process.
This is an important benefit many business owners overlook: you’re not just getting money faster, you’re also transferring the administrative burden and compliance risk to the buyout company.
Key Considerations
Before pursuing an ERC buyout, there are several factors to evaluate:
Cost vs. benefit: You won’t receive 100% of your ERC value. Buyout companies typically offer between 70-92% of the total refund amount, depending on the structure and terms.
Tax implications: Consult with your tax advisor about how a buyout might affect your financial statements and tax situation.
Company reputation: Not all buyout providers operate the same way. Research the company’s track record, transparency, and customer reviews before proceeding.
Your cash flow needs: If you can comfortably wait for the IRS without financial strain, waiting might make more sense. But if immediate capital would significantly benefit your business, a buyout could be worth the cost.
Is ERC Buyout Right for You?
An ERC buyout isn’t the right choice for every business. It works best for companies that need immediate access to capital and prefer certainty over waiting for an unpredictable government process.
The key is understanding exactly what you’re agreeing to, working with a reputable provider, and consulting with your financial advisors before making a decision. You can also check out this article which goes deeper into this question – Is an ERC Buyout Right for Your Business?
At OBC Fund, we believe in transparency and education first. Whether you choose to pursue a buyout or wait for your IRS refund, understanding your options helps you make the best decision for your business’s unique situation.
You can call give us call at 941-451-5634 to learn more about the process.