News

A Guide to Financial Aid and Resources to Manage the Pandemic

By Dan Mills

April 2, 2020

20200402_Entrepreneur_650x430

 

Small law firms in need of financial assistance because of the COVID-19 crisis have several resources to rely on, but plan to be patient as there is a lot of demand for aid. Get your financial records together and ready to upload. You will likely need copies of tax returns, perhaps a financial statement, and even a business plan. To obtain a business plan template for your firm, email [email protected]

Economic Relief From SBA
The Small Business Administration’s (SBA) Economic Injury Disaster Loan program provides small businesses with working capital loans of up to $2 million that can help them overcome the temporary loss of revenue they are experiencing. 

Small business owners, including law firms, are eligible to apply for an Economic Injury Disaster Loan advance of up to $10,000. The loan advance will provide economic relief to businesses that are currently experiencing a temporary loss of revenue. Funds will be made available within three days of a successful application, and this loan advance will not have to be repaid.  

Apply for a COVID-19 Economic Injury Disaster Loan here

These loans are issued directly by the SBA and do not involve financial institutions. Applications are submitted to the SBA, which presently anticipates funding of approved loans following SBA underwriting review in 30 to 40 days. Key terms are as follows:  

1.The loans will be issued in two phases and generally limited to $2 million overall, with a maximum of $500,000 available in Phase I. The loan amount for individual borrowers in Phase I will be based on gross profit for the prior year multiplied by 0.5. 

2. Loan terms: 3.75 percent, fixed rate, 30 years, initial payment deferred for 12 months. Interest will accrue during deferral period and will be calculated and recovered through amortized payments over the life of the loan. Prepayment (entire or partial) is permitted. 

3. No collateral will be required for loans under $25,000. For loans in excess of $25,000, the SBA will have a generous assessment of available collateral, which will include a company’s accounts receivable and real estate. 

4. The SBA anticipates that loans will be reviewed, approved, and funded in 30 to 40 days following application submission. Phase I loans will be funded in a single lump-sum payment; if a business believes it will need more than the value of the loan, it may apply for a Phase II loan. 

5. Proceeds are to be used for working capital, such as fixed debts, payroll, accounts payable, and other bills that would have been paid in normal course but for the disaster. 

6. Eligibility will be based on credit history, repayment ability (demonstrated by prior experience, not during the time of emergency), and the business’s location in the designated disaster area. Companies must be able to demonstrate that they have suffered working capital losses due to the disaster. 

Loans From Private Banks
Private banks are making loans available under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Go to your bank’s website for more information and to apply. You may also apply at the U.S. Department of Treasury. The application is here

The CARES Act provides various kinds of relief, including the availability of non-recourse “paycheck protection loans” to small businesses (defined as fewer than 500 employees) with the following key terms:  

1. The loans are issued by banks and fully guaranteed by the federal government through December 31, 2020 (returning to an 85 percent guarantee for loans greater than $150,000 after that date) and are generally limited to the lesser of:  

a. The sum of (1) average monthly payroll costs for the one-year period ending on the date the loan was made multiplied by 2.5, and (2) any disaster loan (discussed below) taken out after January 31, 2020, that has been refinanced into a paycheck protection loan, or 

 b. $10 million.  

2. “Payroll costs” are the sum of specified classes of costs, including (1) wages, commissions, salary, or similar compensation to an employee or independent contractor; (2) payment for vacation, parental, family, medical or sick leave; (3) dismissal or separation allowances; (4) group health care benefit payments, including premiums; (5) payment of any retirement benefits; and (6) payment of state or local tax assessed on the compensation of employees. 

3. Payroll costs do not include (1) compensation of an individual employee in excess of $100,000, as pro-rated for the period from February 15, 2020, through June 30, 2020; (2) federal payroll taxes (for which certain employers may be entitled to a partial credit under a separate portion of the act); (3) compensation of an employee whose principal place of residence is outside the United States; or (4) qualified sick or family leave for which a tax credit is allowed under the Family First Coronavirus Response Act, which passed earlier in March. 

4. The borrower is to certify that (1) the uncertainty of current economic conditions makes the loan request necessary to support the ongoing operations of the company; and (2) the funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments.  

5. The loans will have a maximum maturity of 10 years and an interest rate not to exceed 4 percent. Proceeds may be used to cover payroll, mortgage payments, rent, utilities, and any other debt service requirements. The standard fees imposed under Section 7 of the Small Business Act are waived.  

6. The loan will be non-recourse, except to the extent the funds are used for an unauthorized purpose. Lenders cannot require collateral or a personal guarantee for the loans. 

7. A portion of the loans will be subject to forgiveness, converting the forgiven portion into a grant. A separate section of the CARES Act calls for a portion of the paycheck protection loans to be forgiven on a tax-free basis. The amount to be forgiven is the sum of the following payments made by the borrower during the eight-week period beginning on the date of the loan: payroll costs (as defined above), mortgage interest, rent, and certain utility payments.  

8. The forgiveness amount shall be reduced in the event of a reduction of workforce and/or a reduction in employee wages, pursuant to computation formulas in the law.  

9. To seek forgiveness, a borrower must submit to the lender an application that includes documentation verifying the number of employees and pay rates, as well as canceled checks showing mortgage, rent, or utility payments. The lender is to render a decision on the forgiveness application within 60 days, and the SBA will pay the lender that amount (plus interest) within 90 days of that decision.  

Washington, D.C., Area Response 

District of Columbia 

 Maryland 

 Virginia 

Business Resources 

Mental Health Help 

 General Resources 

The D.C. Bar’s Practice Management Advisory Service (PMAS) is open and available to help members with the business of starting, growing, and managing a law firm. Reach our advisors: 

Dan Mills: [email protected], 202-780-2762
Rochelle Washington: [email protected], 202-780-2764  

Or contact the PMAS at [email protected].