For many of the nearly 5 million American companies that have received low-interest loans through the Paycheck Protection Program (PPP), an initiative approved by Congress as part of its first coronavirus relief package in March, the financing they obtained has been indispensable in keeping employees on their payrolls during a pandemic.
Law firms, many of whom are helping their clients navigate the process of securing PPP loans, were thus well positioned to make use of the program themselves, and law firms have indeed been enthusiastic in their uptake of it. So far, 1,821 South Carolina law firms have received PPP loans, which allowed them to preserve 11,135 law-related jobs, according to data published by the Small Business Administration and the U.S. Department of the Treasury.
But it’s a success that law firms seem to be very reticent to talk about. Lawyers Weekly contacted more than a dozen firms in the state that have received PPP loans, but all of those firms either declined to respond to those emails, declined to speak about the topic for this story, or shared only a prepared statement on the matter.
Nevertheless, 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.
More than 90 percent of law firms received loans of less than $150,000, with only 167 law firms procuring financing above that amount. The two largest loans went to Motley Rice and Nexsen Pruet, which each received loans of between $5 million and $10 million. The firms reported in their loan applications that the financing would enable them to retain 379 and 348 jobs, respectively.
Four firms—Gallivan, White & Boyd; George Sink, P.A. Injury Lawyers; Turner Padget; and Willson Jones Carter & Baxley—received loans of between $2 million and $5 million and reported that they would be able to retain 710 jobs collectively as a result.
Seven firms received loans of between $1 million and $2 million, 45 firms received loans of between $350,000 and $1 million, and 109 firms received loans of between $150,000 and $350,000.
Totting up those sums, the 167 firms procured at least $57.1 million in PPP loans, and almost assuredly well in excess of that figure. Those figures don’t include law firms headquartered in other states that have offices in South Carolina; conversely, some of the jobs preserved at South Carolina law firms may be based in other states.
The SBA didn’t provide the names of companies whose loans were under $150,000, but did include the North American Industry Classification System (NAICS) code for every company receiving a loan of any size, allowing researchers to calculate the total number of law firms receiving loans and the total number of reported jobs preserved.
The loan that dare not speak its name
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 percent of the loan amount. In exchange, the banks extend loans on exceedingly favorable terms—interest rates are just 1 percent, 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.
Ostensibly, the relief is intended for small businesses, but companies with up to 500 employees can qualify if they meet all of the other criteria. Some recipients of loans have thus been subjected to “PPP shaming” on social media and elsewhere, some of which did in fact ferret out recipients that didn’t qualify for relief and had to return the money after public outcry.
But some PPP-shaming has been aimed at companies that were simply deemed to be insufficiently worthy of sympathy because of their line of business—hence the reluctance to talk about the loans. (The SBA initially resisted making information about PPP loan recipients public before finally relenting in the face of public pressure in early July.)
Nexsen Pruet was one of the few law firms that was contacted that was willing to offer even a prepared statement about the PPP.
“Due to the economic uncertainty within our country and our law firm, Nexsen Pruet applied for the Paycheck Protection Program (PPP) to avoid COVID-driven layoffs, despite significant lawyer and senior management pay cuts and expense reductions that had already been enacted within our eight offices throughout North Carolina and South Carolina,” the firm replied in an email on behalf of Leighton Lord, the chair of the firm’s board.
“The PPP money will not cover our law firm’s reduction in revenue due to the economic downtown and its impact on the companies we serve, but the money is helping us bring back furloughed employees faster. This money is also allowing us to continue to serve our clients who are having to defer payments, or request reductions in legal fees, while they continue to restart operations.”
Turner Padget also shared a statement on behalf of its chief executive officer, C. Pierce Campbell, saying that the firm was grateful to receive an SBA loan under the PPP, and the funding allowed the firm to retain its entire team of attorneys and staff without furloughs or layoffs.
For a few dollars more
Initially, all loans had to be approved by June 30, but that deadline has since been extended until at least Aug. 8. Congress allocated more than $660 billion in funding for PPP, and as of the end of June businesses had tapped around $520 billion in credit.
It remains to be seen how much of that debt will ultimately be forgiven by the SBA. Fred Green, president and CEO of the South Carolina Bankers Association, said the regulations necessary for turning loans into grants haven’t been written yet. Congress is also considering bills that would make it easier for loans to be forgiven.
“The program was intended to convert a loan to a grant—in other words, forgive the loan—if you kept your employees on the payroll,” Green said. “The process by which you get that loan forgiven has not been defined by SBA, so at this point in time, even though there are quite a few who would like to apply for forgiveness, there’s no mechanism to do it.”
In total, at least 63,167 companies have received PPP loans in South Carolina so far, preserving an estimated 658,000 jobs. Green said $5.7 billion in loans have been written for companies operating in South Carolina.
Currently, businesses are limited to receiving a single PPP loan. But as the pandemic has raged on longer than legislators and businesses may have initially anticipated, there have increasingly been calls for the federal government to extend further assistance. As Lawyers Weekly went to press, Congress was haggling over several relief proposals and negotiations remained in a state of flux.
One bill, introduced on July 27 by Sens. Marco Rubio (R-Fla.) and Susan Collins (R-Maine), would allocate more money for PPP funding, allow the most severely affected small businesses to receive a second PPP loan, expand the list of expenses that PPP funds can be used to cover, and simplify the forgiveness application process for smaller loans.
Lawyers Weekly executive editor Andy Owens contributed to this story.
Follow David Donovan on Twitter @SCLWDonovan