Law Firms Qualify for the Payroll Protection Program
Under the CARES Act
Due to the financial duress suffered by businesses as a result of COVID-19, the federal government passed a stimulus plan called the Coronavirus Aid, Relief, and Economic Security Act (CARES) to help businesses and individuals weather the financial storm. Part of this bill is the Payroll Protection Program (PPP), which offers low interest business loans to small businesses. Law firms, including solo practitioners, are eligible to apply for these loans. The loans can be fully forgiven subject to certain requirements. This means that the loans will turn into tax free subsidies if you meet these requirements including maintaining employees and salary levels for an eight-week period.
Why You Should Apply
The impact of the COVID-19 pandemic on the revenue of law firms is likely to be substantial and disruptive. The longer the social distancing practices are maintained the more difficult it will get to bill clients. Various billable tasks like hearings, depositions, mediations, etc., will be more difficult to get scheduled and completed. With so many people working from home, even with conference calling and video conferences, billable events will become backlogged. In addition, clients who might be cash strapped themselves, may begin to pay more slowly or not pay at all. So, the PPP will help to bridge the revenue gap.
Some may ask why take out a loan when they can just lay off employees to save money? The reason is that the pandemic will be a short-term disruption, and once it is over, business will return to normal and you will have to rehire. Then the employee you laid off may not be available and you will be forced to engage in a search. So, it is better to keep them as long as possible, and the PPP essentially pays your payroll for eight weeks to assure that you can keep everyone employed, whether the revenue comes in or not.
For the solo practitioner, even without employees, the PPP can be used to pay your own salary for eight weeks at the level you paid yourself during 2019. So, this can be a safety net in the event of cash flow disruptions resulting from COVID-19.
How It Works
The PPP provides significant financial incentives for small businesses to hold on to current employees and to bring back employees who have been laid off or furloughed. Funds are provided in the form of loans that will be fully forgiven when used for payroll costs, interest on mortgages, rent, and utilities (at least 75% of the forgiven amount must have been used for payroll). Loan payments will also be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees. Small businesses with 500 or fewer employees are eligible. The loan amount will be up to 2.5 times your total average monthly payroll from 2019. So, if your payroll was $600,000, you divide that by 12 and multiply by 2.5 to get a maximum of $125,000.
You are encouraged to apply as quickly as possible, because there is a funding cap. If the program uses all the funds, you will not be able to be included. For more information on the details click here for a link to the National Law Review description of the program.
How to Apply
Employers who want to apply for a loan under the PPP may go to any existing SBA 7(a) lender. You can also apply directly with the SBA by clicking this link, however, the SBA is likely to be overwhelmed with applications and your application may be delayed. So, you should inquire with your current bank as to whether they are an SBA lender. For Georgia firms, the following link will give you a list of the Top SBA Lenders in Georgia.
I strongly encourage you to take advantage of this valuable program as quickly as possible. This will allow you to keep your employees for at least another eight weeks without a reduction in their pay or disruptive layoffs. It will help you bridge the gap in the event of cash flow problems and also protect your own income.