How Small Law Firms in Texas can Benefit From the $2T Stimulus Package
By Philip Silberman
Small law firms across Texas have been crippled because of
“stay-at-home” and “shelter-in-place” orders due to the coronavirus
pandemic. Most recently, Gov. Greg Abbott signed an executive order
consolidating its local predecessors and limiting non-essential activity
until April 30, 2020. To rescue America’s economy, the federal
government recently passed into law the CARES Act, a $2 trillion
stimulus package.
The 880-page law and guidance documents provided by the Small Business Administration, or SBA, are complex; however, the most important sections of the law are Section 1102, titled Paycheck Protection Program, and Section 1106, titled Loan Forgiveness. Most critically, these sections provide access to $349 billion of capital to small law firms and businesses, much of which can be completely forgiven if used in the correct ways. Below are some critical facts about the law.
Who Can Apply?
Small businesses (entities or individuals), including law firms and
nonprofits, with no more than 500 employees.
How Much Money Can a Law Firm or Business
Borrow?
Loans can be for up to two months of a law firm’s or business’s 2019
average monthly payroll costs plus 25%. Loans are capped at $10
million.
Will the Loan Be Forgiven?
Monies used during an eight-week period after loan origination for
things like payroll costs, rent, and utilities will be eligible for
complete forgiveness. It is likely that not more than 25% of the total
loan may be used for expenses other than payroll costs to qualify for
forgiveness. Forgiveness of debt is also tied to retaining employees and
maintaining salary levels. The principal sum forgiven is nontaxable by
the IRS.
What Are the Terms of the Loan?
The rate of interest on unforgiven amounts will accrue at a fixed rate
of 1%, and the loan is for a term of two years. No collateral or
personal guarantees are required for the loan. Payments are deferred
over six months, but interest will accrue during the entire life of the
loan. There is no prepayment penalty associated with the loan.
How Can a Law Firm or Business Apply?
Law firms or businesses can apply at any SBA-approved lender or
FDIC-insured institution—essentially any bank. Law firms or businesses
can visit sba.gov for a list of SBA
lenders.
When Can a Law Firm or Business Apply?
Applications will be taken through June 30, 2020. Law firms and
businesses are encouraged to apply as early as possible because the
program is limited.
How Can Loan Forgiveness Be Requested?
Law firms and businesses may submit an application for forgiveness
with the lender that originated the loan, and lenders must make a
decision on forgiveness within 60 days.
Conclusion
The CARES Act essentially provides free money to small law firms and
businesses in Texas; however, funds must be used in compliance with the
act for debt to be forgiven. Taking out these loans based on the
forgiveness component is not without risk. This type of loan has never
been offered by the federal government before, and there is no precedent
for lender decisions on forgiveness. Businesses that fail to manage
payroll expense and other fixed costs in combination with the use of
these loans as a calculated risk could find themselves with
insurmountable business challenges. The law is complex, and a competent
business lawyer should be used to navigate the application process and
to monitor use of loan proceeds.TBJ
PHILIP SILBERMAN
holds a B.B.A. with a focus in finance from the University of Texas
and a J.D. from the University of Houston Law Center. He has served as
in-house counsel for both commercial and residential real estate firms.
Silberman’s legal practice areas include real estate law, business law,
probate, and asset protection. He is available for consultations in both
Dallas and Houston. For more information, go to silblawfirm.com.
