The unprecedented decline in economic activity as a result of the coronavirus is affecting small businesses, including law firms, around the country. In response, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), which provides some important benefits for small businesses. The $2 trillion legislation includes a “Paycheck Protection Program,” which will allow companies to maintain payroll and other critical expenses during this period.
Our team has reviewed the bill and identified the key elements that can help your law firm weather any potential economic difficulties related to the coronavirus pandemic. This includes the ability for eligible firms to borrow up to 2.5 times your average monthly payroll costs, with no personal guarantees or collateral required and loans forgiven if conditions are met.
Please note: Assembly Software does not provide legal, tax, or accounting advice. The information below is for informational purposes only and is not intended to provide and should not be relied on for legal, tax, or accounting advice. You should consult your legal, tax, and accounting advisors.
The full Act is available here, but the 10 things to know are below:
- The Small Business Administration loan program is being expanded to provide federally backed loans to small businesses.
- Loans will initially be disbursed through the extensive network of banks that participate in SBA’s 7(a) Loan Program, and it is likely that this network will be expanded in the coming days.
- To be eligible, a law firm must have fewer than 500 employees.1
- Eligible firms may borrow up to 2.5x their average monthly payroll costs for the preceding 12 months.
- Payroll costs include salary, wages, commission, or similar, PTO, severance, health insurance payments, and state and local payroll taxes, but exclude federal payroll taxes and compensation of an individual employee over $100,000 per annum.
- No personal guarantees or collateral are required for the covered loan.
- The proceeds of the loan may be used to pay payroll costs, mortgage interest, rent, utilities, and interest on other debt obligations during the 8-week period after the origination of the loan.
- The loan will be forgiven to the extent it is used to pay for the following during the eight weeks after loan origination: payroll costs, mortgage interest, rent, and utilities (including telephone and internet), provided these were in force prior to February 15, 2020.
- Loans forgiven will not be counted as taxable income.
- Since the loan is intended to protect employees and keep them on the payroll despite the difficult economic conditions, loan forgiveness will be reduced in proportion to any reduction in workforce (calculated by dividing the average number of FTEs per month during the 8-week period after loan origination and the average number of FTEs per month during either (as elected by the borrower) February 15, 2019 – June 30, 2019, or January 1, 2020 – February 29, 2020.
We hope that this Act will see your firm through any financial hardship related to this global pandemic. We encourage you to reach out to your legal and accounting professionals, as well as your banks to discuss your eligibility and how you may apply for the Payroll Protection Program.
Our team continues to work remotely, but at full strength, and we are standing by to help customers with software, hosting, training, or other support needs. If you’re a firm interested in exploring web-based case management software, from the software company trusted by more firms than any other, please contact us for more information.
1The CARES Act doesn’t indicate that SBA revenue size standards are applicable; the SBAs forthcoming regulations may clarify this issue. The maximum size standard for law firms is $12 million average annual revenue for the preceding three years.