Small business loans made available through the new stimulus package could go a long way in keeping small and solo law firms afloat, experts say.
"There's no question that lawyers, especially solo practitioners and small law firms, have been impacted profoundly by the virus," said Hank Greenberg, president of the New York State Bar Association. "It has had a traumatic impact on solo and small firm practices, especially because many of them don't have deep reserves or savings to draw from."
The small business loans made available through the legislation, which is set for a Friday vote in the House, would make a major difference in keeping those practices afloat, as long as the law firms that need them are eligible for the loans, Greenberg said.
"Fundamentally, smaller firms and solo practitioners, those are small businesses in the quintessential sense. I am hoping they will be fully eligible to accept those benefits from the Small Business Administration," he said.
The bill specifies that eligible businesses for the small business aid include those with 500 or fewer employees, or those that fit the applicable size standard for their industry as provided by the Small Business Administration. Existing SBA documents show that in the legal industry, a law firm or other legal services company has been considered a small business if its revenues do not exceed $12 million.
A provision of the bill known as the Paycheck Protection Program would encourage struggling small and medium-sized businesses to continue paying workers and providing benefits through partially forgivable loans to cover salaries, insurance, rent and other costs.
Loan recipients would be forgiven the amounts they put into payroll costs and mortgage payments and interest for eight weeks after loan origination, with some limitations. This forgiveness is also available to businesses that rehire workers who have already been laid off.
The bill also provides non-forgivable loans to other businesses under certain conditions, including that they maintain their current staffing through September "to the extent practicable" and do not engage in stock buybacks "unless contractually obligated."
According to Heather McCullough, a partner at consulting firm Society 54, while many firms fall under the small business definition and will be eligible for loans, they must keep in mind that it takes time to complete the loan application and money will not be available immediately.
"Actions need to be taken quickly if there aren't enough cash reserves to cover current costs," McCullough said.
Firms should speak with their bankers immediately to discuss options for how they can secure money, if necessary, to keep employees paid, and cover rent and other monthly fixed costs in the short term, she advised. And they should have conversations with suppliers and vendors about extending payment terms, with building owners about deferring rent, and with their own partners about the option of deferring payments for one to two months.
For those law firms that do not qualify as small businesses, the Federal Reserve announced earlier this week that it expects to establish a program to support lending to eligible small and medium-sized businesses, which it says will complement efforts by the SBA.
The stimulus bill also includes an expansion and extension of unemployment benefits for Americans, which could provide relief for midsize law firms that are hesitant to lay off staff but may need to in order to weather the storm, said John Remsen of The Remsen Group.
"I think it bodes well for law firms and will be very helpful to see them through this," Remsen said.
Law firms may also see a boost because certain key, struggling industries like the airline and retail industries are receiving large amounts of aid from the government via the legislation, and small businesses are receiving a boost as well — money those companies can use to pay lawyers, New York University School of Law professor Stephen Gillers said.
"Part of every dollar to business is a potential legal fee," Gillers said. "The 2008 recession hurt the bar because it hurt clients and the rescue package was small. This one's not small."
--Additional reporting by Braden Campbell. Editing by Kelly Duncan and Aaron Pelc.
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