The new Coronavirus Aid, Relief, and Economic Security (“CARES”) Act pumps $2.2 trillion into the American economy to combat the effects of the Coronavirus, including $350 billion to help prevent small business closures and job losses. Can the CARES Act help law firms? Absolutely. Law firms and other businesses with fewer than 500 employees (including self-employed individuals and independent contractors) that have been in operation since certain dates and have paid wages and applicable payroll taxes, can (and probably should) take advantage of the benefits. Here’s what you need to know.
First, the CARES Act provides a Paycheck Protection Program (PPP) under which small businesses can obtain Small Business Association (SBA) loans equal to 250 percent of their average payroll costs (subject to certain caps). The funds can then be used for payroll, insurance group premiums, mortgage interest, rent, utilities, and “interest on other debts.” As far as the terms of the loans, the usual collateral or personal guarantee requirements for SBA loans are waived, the fees associated with the loans are waived, all payments (including interest payments) on the loans are deferred for one year, and there is no prepayment penalty. In addition, the lender will forgive any portion of the loans that are used for payroll, utility payments, and rent or mortgage interest payments made over an eight-week period beginning on the date of origination of the loan (subject to certain requirements).
Second, the CARES Act has expanded the provisions for Economic Injury Disaster loans (EIDLs) provided through the SBA. Now that the COVID-19 crisis has been officially deemed a “disaster,” small businesses, independent contractors, and sole proprietors in operation since January 31, 2020, can apply for EIDLs of up to $2 million. They can also apply for up to $10,000 in emergency cash grants that can be forgiven if spent on paid leave, payroll, mortgage/lease payments, or other eligible purposes.
As law firms look to weather the current storm, CARES Act relief should certainly be on the table for all who qualify.
For the latest updates on how COVID-19 is impacting the legal profession, please visit our resource page here.