In a time of economic downturn, attorneys in private practice may experience a decrease in client fee income and struggle to cover payroll and overhead. Law firms who meet the Small Business Administration (SBA) size standard (generally less than 500 employees) and solo practitioners can qualify for Paycheck Protection Program (PPP) loans. PPP loans have very favorable terms and the majority of the principal is forgivable.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020. CARES included economic stimulus, tax relief and employer relief including the PPP, a small business loan program designed to incentivize small businesses to keep workers on the payroll. While the initial allocation of $349 billion was exhausted by April 16th, a second allocation is in the works. On April 21st, the Senate approved an additional $320 billion for the PPP and the House is expected to vote later this week.
PPP loans are available for up to two and a half times monthly payroll expense. For a sole proprietor, the loan is generally calculated at two and a half times the average monthly net income based on line 31 of Schedule C of your 2019 tax return. Loans carry one percent interest over a two-year term, and payments are deferred for six months. There is no personal guarantee or collateral required and no loan fees to the borrower. The lender is required to fund the loan within ten days of approval.
Up to eight weeks of payroll expense or schedule C net income may be forgiven. The loan will be forgiven if employees are maintained or quickly rehired and salary levels are maintained. Also, the loan funds must be used for eligible purposes – at least seventy-five percent must be used for payroll costs, and no more than twenty-five percent can be used for interest on a mortgage, rent, and utilities. Banks await more guidance from the SBA, especially regarding forgiveness of sole proprietor loans.
The time to contact your banker is now – PPP loans are available on a first-come, first-serve basis. Even though the SBA is not currently accepting PPP applications pending an additional allocation from Congress, many lenders are maintaining a que of applications to upload as soon as the portal is reopened. The initial rollout of the program experienced some hiccups – the SBA released the program rules the day before the official program start and lenders rushed to build their programs. Now that the SBA and lenders are through the learning curve, it is expected that the application volume will be high as soon as the SBA opens the gates.
PPP loans are available through SBA certified lenders including many Wyoming community banks. The Senate version of the PPP refill sets aside $60 billion of the new PPP funds for community financial institutions to loan to customers so the new pool is not swept up by megabanks. Some banks are offering applications online. Some banks are only working with existing customers while others are accepting new customers. Contact your lender and be prepared to apply as soon as the SBA resumes acceptance of applications. Time is of the essence!
Kelly M. Neville is the President of the Wyoming State Bar and also serves as General Counsel, Senior Compliance Officer, and Risk Manager for Western States Bank, a community bank headquartered in Laramie, Wyoming, and serving southeast Wyoming, northern Colorado and western Nebraska.