Navigating Government Stimulus Options During COVID-19

As part of the roughly $2 trillion CARES act, there are a number of relief programs available to help businesses across the country, including law firms. 

Here’s an overview of the stimulus options currently being managed by the Small Business Administration (SBA), along with tips for applying, and some additional coronavirus relief options law firms should consider.

Note: The programs covered in this article are changing quickly. We encourage readers to watch relevant government websites for updates. We’ll update this article as new information becomes available. 

The Paycheck Protection Program 

Part of the CARES act, the SBA’s Paycheck Protection Program is aimed at supporting small businesses who keep employees on staff during the COVID-19 crisis with loans to cover payroll and other minor expenses. 

The loan amount is calculated based on 2.5X your average monthly payroll costs, with a maximum of $100,000 per employee, and a maximum total loan amount of $10 million. Loans have a 1% interest rate and mature in two years. 

Here’s what’s notable about the program:

  • Most businesses of under 500 employees will be eligible, including non-profits and sole proprietorships. Self-employed individuals, and independent contractors will also be able to apply starting April 10, 2020.
  • No collateral or personal guarantees are required.
  • All loan payments are automatically deferred for 6 months, though the loan will continue to accrue interest during this time.
  • There’s potential for the loan to be forgiven if you maintain staff and payroll. PPP loans can also be used for rent and utilities for agreements in place before February 15, 2020, and for mortgage interest obligations incurred before February 15, 2020, but it’s unlikely that more than 25% of non-payroll costs will be forgiven.

The program is open until June 30, 2020, but businesses are encouraged to apply as soon as they can given that there’s a cap on funding, and the SBA has confirmed that the program is “first come, first served.”

More detailed information about the Paycheck protection program can be found on the US Treasury website. In particular, this Information Sheet for Borrowers includes more details on applying to the program, what counts as payroll costs, conditions under which the loans may be forgiven, and more.

IMPORTANT: Remember that PPP loans only have the potential to be forgiven if you use them mainly for payroll costs. If you have few staff, but your rent at your downtown law office is expensive, you can use more of your PPP loan to pay rent, but it’s unlikely that a large portion of your loan will be forgiven, so you’ll need to be prepared to repay your PPP loan in two years, or seek additional funding to cover other expenses, such as one of the other options listed below.

Is it worth applying?

With a relief program of this size being deployed this quickly, there are bound to be issues, and that’s certainly true for the SBA’s Paycheck Protection Program. Several banks were not ready to start accepting applications on Friday, April 3, 2020, as planned, while some have received so many requests that they’ve closed to additional applications. There were also issues with the online portal lenders use to submit loans to the SBA.

With a tremendous-but-still-finite amount of funding available, and the SBA confirming that program operates on a first-come, first-served basis, one might be wondering, is it worth spending the time and energy to apply now at all?

Despite the difficulties mentioned above, the answer is still a resounding “yes.” The government is aware of issues with the program and is working to fix them. The US Treasury is also already preparing to ask congress $200 billion more for the program to ensure small businesses get the help they need.

This is a massive relief program, and the largest one available to US small businesses. It’s also vital for the US economy that this money gets out to the small businesses who need it. Given the low interest rate, and the potential for loans to be forgiven if they’re used for the right reasons, it’s absolutely worth applying. 

That said, it’s important to keep in mind that the scale of this program is unprecedented for the SBA, and we’d expect processing times to remain unpredictable in the near future. 

How to apply for a Paycheck Protection Plan Loan

It’s worth applying ASAP so that you’re in a good position to receive a loan once everything is running smoothly—but take enough time to make sure that all your information is correct, and that you’ve got all the supporting documents needed. You can only apply for one PPP loan.

1. Finding a lender

PPP loans are being administered by banks and other lenders, not directly by the SBA, so you’ll need to apply directly to a bank for a loan. You can find a list of eligible lenders here.

Many banks are only allowing current customers to apply for PPP loans, citing “know your customer” rules that require banks to make sure business customers are not involved in illegal activities—the idea being that this check is oneros, and that it’s easier to process applications for existing bank customers for whom this check has already been completed.

In the short term, this might be a problem if your bank has stopped taking applications, or if you’re ready to apply and your bank hasn’t yet opened applications. In this case, one thing you may want to try is reaching out to a community bank (Jared Hecht of Fundera explains why he suggests this approach here).

2. Filling out the application and calculating payroll costs

The Payroll Protection Plan application form is fairly straightforward, but many people are struggling to calculate their average payroll correctly.

For example, there’s been confusion resulting from the fact that the CARES act states that average payroll should be based on the 1-year period before the date on which the loan is made, but the SBA’s Paycheck Protection Program application form states that “most Applicants will use the average monthly payroll for 2019.”

Lawyers may be better positioned than most to wade through the minutiae of the program. But even so, if you’re short of time, or just uncertain, we recommend reaching out to an accountant or a consultant for help, as the difference could significantly impact your loan amount depending on any changes your law firm has gone through recently.

4. Providing additional documentation   

As part of the application, you’ll need to provide documentation verifying the number of full-time equivalent employees on your payroll as well as the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight-week period following the Payroll Protection Plan loan. However, the specific documents your lender asks for may differ between institutions.

At the very least, get your payroll records, payroll tax filings, and any other tax documents you have for 2019.

5. Future planning: Documenting how the money is spent

If and when you end up receiving a Payroll Protection Program loan, in order for portions of the loan to be forgiven, you’ll need to keep track of how the money was spent so that you can prove you’ve spent it on appropriate expenses (payroll, rent, mortgage interest, and utilities). Otherwise you’ll need to pay back the unforgiven amounts at 1% interest within two years.

One suggestion from attorney Adam Williams (from an April 7 webinar put on by ServeNow): Open a separate bank account for money received through the PPP and other government programs, as this will help you keep a clear record of spending.

Can solo lawyers apply for the Payroll Protection Program?

The answer to this question is, “it depends.” According to Principal of the accounting firm 4700 Group and Clio Certified Consultant Gale Kirsopp, “They must have a payroll. If they are a solo or independent contractor receiving 1099s from other law firms, they will need to wait until the that phase of the program is released. This phase is all about firms with employees of a firm.”

Again, independent contractors may start applying for the program on Friday April 10.

Economic Injury Disaster Loan

The Economic Injury Disaster Loan (EIDL) has been offered by the SBA for many years. The main difference today is that, as part of the CARES act, $10 billion was allocated to fund grants (the SBA is referring to these as “advances” on their website) of up to $10,000 for EIDL applicants. 

Typical processing times for EIDL loans are 3-4 weeks, and with surging interest in the program due to COVID-19, processing times are likely to take even longer. The grants are meant to provide faster relief to businesses that are experiencing a temporary loss of revenue. 

Key details about EIDLs:

  • Available for small businesses (law firms) and most non-profits in a declared disaster area (most states have declared the COVID-19 pandemic as a disaster per FEMA’s website)
  • Loans of up to $2 million, with a maximum 4% interest rate and maximum 30-year term
  • More difficult to qualify for, but less restrictive on spending. There is no requirement to use the funds for specific purposes, as with the Paycheck Protection Program

Key details about the grant:

Details about the EIDL grant are constantly changing, but for now, Bench Accounting has an excellent summary of common questions about both EIDLs and the grant.

How to apply for an EIDL and EIDL grant

You can apply for an EIDL online. You apply for the grant by indicating your interest in it as part of the loan application process.

The online process is fairly straightforward, but as we’ve heard from one lawyer who’s applied, supporting documentation will be required after the fact. Slides 15 and 16 of this presentation on EIDLs from the West Virginia District Office list forms that are “likely requested” and “may be requested” with links to the forms. You can start gathering this information ahead of time if you want to be prepared.

EIDL or PPP loan?

Because of the lack of restrictions on spending, EIDLs may be more suitable for law firms for whom payroll is not their largest expense. Only 25% of non-payroll related expenses may be forgiven for PPP loans, and the term is 2 years on any non-forgiven amounts, whereas terms are much longer with EIDLs, which may be more manageable for your business. 

However, as Gale notes, “the Payroll Protection Program (PPP) has the potential to become a grant if the funds are used exclusively for the listed criteria. Other programs are a loan that will need to be repaid.” So, if there’s any chance you foresee payroll being an issue for you for the next eight weeks, it’s worth applying for a PPP loan since you may not have to pay this money back.

Take a close look at your firm’s finances to determine what’s best for you, and seek the help of an accountant, consultant, or fellow lawyer if you’re unsure.

Can I apply for both programs?

According to this presentation on the SBA’s website, yes, you can apply for both an EIDL and PPP Loan. However, you cannot duplicate the benefits received. For example, you cannot apply for an EIDL to fund your payroll costs.

Other Covid-19 Relief Options

While the Paycheck Protection Program and EIDL grants have received the most media attention, the SBA does have other relief initiatives to help businesses through COVID-19 that law firms may be able to take advantage of. 

One of those is the Express Bridge Loan Program, which allows those with an existing business relationship with an SBA express lender to access up to $25,000. These loans can be used to further bridge the gap for businesses waiting to hear back on their EIDL applications.

You can learn more about this program in the SBA’s program guide, and this article from betterteam provides a decent summary of interest rates, fees, and eligibility. 

Also, if your firm has an existing loan with the SBA, you should know about the SBA’s debt relief efforts. Details:

  • The SBA will automatically pay the principal, interest, and fees of current 7(a), 504, and microloans for a period of six months.
  • The SBA will also automatically pay the principal, interest, and fees of new 7(a), 504, and microloans issued prior to September 27, 2020.

Learn more about the SBA’s additional debt relief efforts here.

Beyond those programs being run through the SBA, there are a number of other initiatives law firms may want to explore that have been set up to help both individuals and businesses through the COVID-19 crisis. Gale has put together a spreadsheet with the available options for her clients, and has generously allowed us to share it here as well.

Additional help navigating government stimulus programs

This is a difficult and unprecedented time for all law firms and all businesses. If you’re feeling overwhelmed, don’t hesitate to reach out for professional help navigating the process, whether an accountant, consultant, or fellow lawyer. 

If you’re not sure where to start, Clio and KORE accounting solutions are offering office hours where you can get your accounting questions answered, including questions about government funding options. Book a slot here.

Note: The information in this article applies only to US practices. This post is provided for informational purposes only. It does not constitute legal, business, or accounting advice.