Law Firms and PPP Loans

How Was the Money Used and Did It Do Any Good?

With PPP2 about to become available, we thought this was a good opportunity to look back at the first PPP and how it worked for law firms and the business of law

When the COVID-19 pandemic spread across the globe like wildfire, so did the need to cease human movement. Within weeks governments ordered "shelter in place" or stay at home orders, which effectively brought most economies to a screeching halt. No industry was immune to the havoc that would inevitably be wreaked by the Coronavirus and subsequent shutdowns.

Attorneys quickly realized that shuttered courtrooms and an inability for most people to do business would mean that revenue could dry up. Along with restaurant chains and celebrity-owned companies, law firms lined up to receive economic relief through the federal Paycheck Protection Program (PPP). 

What is the PPP?

The PPP was economic relief in the form of a low-interest loan administered by the Small Business Administration (SBA). The idea behind the PPP program to help “businesses keep their workforce employed during the Coronavirus (COVID-19) crisis.”

Recipients of the loans were entitled to forgiveness if the funds were used for eligible payroll costs, business mortgage interest payments, rent, or utilities. Other requirements included retaining employees for a certain amount of time and proving that the loan was necessary given the economic hardships created by the health crisis.

Who Received PPP Loans?

Money ran out as fast as it was secured. Early estimates suggest that the first round of PPP funds ran out as early as April, with many of the largest loans being secured by huge companies that were well connected. According to government data on the program, the SBA issued over 5 million loans, with the average loan size being just over $100,000. In total, the approved dollar amount was $525 billion by August 8, 2020.

Investigations immediately began into misuse of the funds, resulting in the SBA releasing a list of the companies that were approved for loans between $150,000 and $10 million. At the top of the list, according to NPR, were restaurants, car-dealers, and lawyers.

What Happened to the Funds Borrowed by Law Firms?

While law firms weren't hit as hard as they anticipated during the COVID-19 crisis, they still had to prepare for an economic downturn not seen in over a decade. Law firms, large and small, borrowed PPP loans to help prevent laying off employees and continue business operations during an uncertain time.

Reuters took an in-depth look at how law firms used the funds and whether they, in fact, prevented layoffs and salary cuts. According to their data, law firms borrowed nearly $12 billion from PPP loans. Their analysis showed that many of the largest law firms still cut employees or salaries despite receiving a huge chunk of the PPP pie.

Some Law firms, even one’s which borrowed the maximum loan amount allowed under the PPP program, announced that it would still be reducing pay for its employees. Both mid-size and large law firms who received substantial loans under the program made similar announcements, including significant layoffs. This is all in spite of the fact that "average revenue grew 5% for the first nine months of the year among the law firms surveyed by Citi (Private Bank)."

Law Firms Under Scrutiny

The entire PPP loan program has received criticism from its inception. Many believe that funds were given out to the companies who needed it the least and that it wasn’t enough to save the businesses that actually needed a lifeline. As pointed out by Reuters, even if the law firms do not qualify for loan forgiveness under the program, they still received low-interest loans ahead of other businesses that couldn’t survive without the capital.

Bottom line – as with nearly every other industry, much of the PPP funds probably went to the wrong law firms. Small law firms and solo practitioners were likely hit hardest by the coronavirus pandemic, desperately needing a PPP loan to survive the shutdowns, but money went to the most well-connected in the industry.

Want to Learn More? Contact Amicus Today!

Amicus Capital Group, LLC has been Transforming the Business of Law? for law firms across the nation. We help trial attorneys and law firms stabilize cashflow through innovative financial solutions. Have you been hit hard by the COVID-19 pandemic? Call our office to discuss how we can help. Our case management team can perform a growth and profitability analysis to determine how to make 2021 your best year to date.

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