Maura Mazurowski//August 31, 2020
Maura Mazurowski//August 31, 2020//
For many of the nearly 5 million American companies that have received low-interest loans through the federal Paycheck Protection Program (PPP), the financing they obtained has been indispensable in keeping employees on their payrolls during a pandemic.
Law firms, many of whom helped their clients navigate the process of securing PPP loans, were therefore well positioned to make use of the program themselves – and they were not hesitant to do so.
Since March, when Congress approved PPP as part of its first coronavirus relief package, 2,490 Virginia law firms have received PPP loans, funding which allowed them to preserve 12,328 jobs, according to data published by the Small Business Administration and the U.S. Department of the Treasury.
Many of Virginia’s largest firms participated. Of the 90 firms listed in the Virginia Lawyers Weekly 2020 survey of “Virginia’s Largest Law Firms,” 58, or 64%, were on the list.
Nationally, at least 45 law firms in the Am Law 200—more than a fifth of the nation’s 200 highest-grossing law firms— received SBA loans this year, according to Law.com.
Many of the very largest firms and the Virginia offices of big firms headquartered elsewhere were not among those seeking the PPP loans.
Successfully securing jobs is an accomplishment that law firms should be proud of. And yet, it’s a victory that most of the largest law firms seem reluctant to discuss.
VLW contacted leaders at six of the participating larger firms, and they all declined to speak about their PPP experience on the record.
Yet other large firms did not respond to a request for comment.
Some smaller firms, however, were more willing to discuss their process of obtaining a PPP loan.
Nhon Nguyen, managing partner of Nguyen Ballato, a 20-person firm in Richmond, said that the PPP loan helped maintain a “sense of normalcy” for his employees when the pandemic began.
“I never thought of letting anyone go,” Nguyen said, adding that the only major impact the virus had on his employees was the delay in bringing on a new hire from March to July.
“I know a lot of my friends, or people I know that work at bigger law firms, were cutting salaries and hours or letting people go,” he said. But I didn’t want to lay anyone off. I didn’t want to furlough anybody… With the PPP loan we managed not to do that.”
Credit unions over large banks
According to Nguyen, the PPP loan application process was “painless” and easy to navigate – an ease that he attributes to working with a credit union to obtain his loan.
“To get the loan, you had to have an account set up at whatever bank you used,” Nguyen said. He originally went to his primary bank, Truist, to apply for the PPP loan. But in the first few days following Congress passing the PPP loan, Truist still “didn’t have their website up” to have the loans processed, Nguyen said.
So he turned to Atlantic Union instead.
“Randomly enough… I opened a credit line with Atlantic Union in 2019 just to have… I didn’t intend to use it,” Nguyen said. “They had their website and everything up at least two days before [Truist] did.”
Nguyen said an Atlantic Union employee contacted him within days of completing the PPP loan application. Two weeks later, he received his PPP funds.
“I wasn’t waiting with bated breath. In my mind, it wasn’t a bad turnaround… And I think it’s because we used a smaller bank,” Nguyen said.
Nguyen wasn’t surprised that Atlantic Union proved to be more helpful than Truist; news headlines in the weeks following Congress’ approval of the PPP loan shared similar sentiments:
Carolyn Grimes, a partner at Wade, Grimes, Friedman, Meinken, Leischner, an 8-person firm in Alexandria, said that, after reading the news and hearing “horror stories” from colleagues on applying for a PPP loan at their their primary, larger banks, her firm opted to apply for the PPP loan through Atlantic Union, instead.
“Everyone I know that got a [PPP loan] in the first round used a smaller bank… Bank of America rejected everyone. Wells Fargo told people they had to open an account with them,” Grimes said. “We have an account with larger banks, and we didn’t even try to apply with them.”
According to the SBA, banks with less than $10 billion in assets issued about 60% of loans in the first round of the PPP loans, which opened on April 3; however, independent contractors and freelancers weren’t allowed to apply until April 10.
One larger firm – Rees Broome in Tysons Corner – was willing to talk and their experience indicates that not everyone’s PPP experience with larger banks was negative. George Heath, executive director of Rees Broome, which employs 100 people, including around 45 lawyers, said that his application process with Truist was “straightforward.”
“There was a period of several days we had to anxiously wait, until an assigned individual called with a few confirming questions for final approval of our application,” Heath said. “But we have not had to furlough or lay off anyone.”
Big bucks, no whammies
Even though PPP loans are propping up much of the nation’s economy, law firms’ reluctance to discuss their use of them is understandable. The way the program works is that banks lend money to businesses, and the SBA agrees to backstop 100% of the loan amount. In exchange, the banks extend loans on exceedingly favorable terms—interest rates are just 1%, and all payments are deferred for at least 10 months. On top of that, the SBA will forgive loans if all employee retention criteria are met and the funds are used for eligible expenses.
And although most firms are disinclined to talk about it, the data published by the SBA reveals a great deal about the extent to which the PPP has been essential in staving off a flood of layoffs in the legal profession.
Approximately 70% of the 2,490 Virginia law firms that obtained PPP financing received loans of less than $150,000, with 98 law firms procuring financing above that amount. The two largest loans went to Williams Mullen and Oblon, McClelland, Maier & Neustadt in Richmond and Alexandria, respectively. Both firms received loans of between $5 million and $10 million.
“At this time, the firm is still in the middle of the PPP loan process. We would be happy to speak with you when the process is complete,” said a spokesperson for Williams Mullen in an email.
Oblon McCllelland did not respond to requests for comment for this story.
Eight firms received loans of between $2 million and $5 million, 28 firms received loans of between $1 million and $2 million, 86 firms received loans of between $350,000 and $1 million, and 205 firms received loans of between $150,000 and $350,000.
Those figures don’t include law firms headquartered in other states that have offices in Virginia; conversely, some of the jobs preserved at Virginia law firms may be based in other states.
The SBA—which initially resisted making information about PPP loan recipients public before it finally relented in the face of public pressure in early July—didn’t provide the names of companies whose loans were under $150,000, but it did include the North American Industry Classification System (NAICS) code for every company receiving a loan of any size, which allowed researchers to calculate the total number of law firms receiving loans and the total number of reported jobs preserved.
“Forgiveness” plans are uncertain
The SBA updated its PPP loan forgiveness guidelines on Aug. 4.
So long as companies used the funds for four specific purposes – payroll, mortgage interest, rent and utilities – then they should be able to have their loans entirely forgiven.
Still, it seems most law firms are still unsure as to when –– and how –– forgiveness for their PPP loans will be handled.
“I don’t think [forgiveness] has been unveiled yet,” Nguyen said.
Though Atlantic Union has been regularly sending Nguyen email updates confirming that they are “getting things together” to start the PPP forgiveness process, he said that he’s not sure that the banks have been informed on the forgiveness guidelines.
“I’m hoping and anticipating that all of our loans will be forgiven… But we haven’t started the process yet,” Grimes said.