Law firms identified as small businesses may be able to take advantage of the Paycheck Protection Program (PPP). The PPP is a new government program that offers assistance to employers to help cover losses incurred during COVID-19. But the PPP Paycheck Protection Program SBA loans for law firms legislation includes several undefined and vaguely defined terms.
Gaining acceptance into the (7) Paycheck Protection Program is just the first of many hurdles law firm owners may face because receiving tax-free debt forgiveness on the entire loan amount has specific requirements. Funds must be used for one of four delineated purposes:
So, as you may see, when it comes to "payroll," the (7) Paycheck Protection Program eligibility for law firms can be vague.
Applying and Qualifying for Loan Forgiveness
The program is authorized by the federal government, ran by the Small Business Administration, and administered by financial institutions. What's more, the application process for Paycheck Protection Program SBA loans for law firms is not as straightforward as some may have initially thought.
There may be confusion over multiple aspects like who is considered an "employee" and who is a partner. If law firms want total loan forgiveness, they must meet "use of funds" requirements regarding compensating employees, not partners, for lost wages. But that problem is just the beginning of the confusion. It's one reason some law firms are partnering with outsourced law firm CPAs to help clarify the application process. The goal, of course, is two-fold: to be accepted into the program and to have the entire loan amount forgiven.
Frequently Asked Questions
A large number of entities, from large firms to one-person entities, have already gone through the application process for Paycheck Protection Program SBA loans and some have begun to receive the funds. Now, they may be discovering ground-level difficulties about how to categorize people who work for the firm, how to define what it means to be a "W-2 employee" and what the tax accounting definition is of "employee/partner."
The fact of the matter is that the PPP Paycheck Protection Program SBA loans for law firms are intended to replace utilities, rents, debt interest, and wages of non-owners. But what if you run a solo practice and pay yourself? That may be a clear-cut case of being both a partner/owner and an employee. Still, some banks are answering "no" to applicants.
Some single-person firms are being told that they can only use loan proceeds to compensate W-2 employees, not anyone who is paid via a "draw." Further, several large banks are saying that the Paycheck Protection Program loan forgiveness for law firms is something they refuse to cooperate with and are flatly refusing to participate in the program. So our team of law firm accountants recommends that you work with an experienced accountant to help you navigate this arena.
Next Steps: Loan Approval
By documenting everyone's status at your firm as either an owner/partner or a traditional employee, it may increase your chances of being approved. But you don't have to face this accounting dilemma alone. We'll be glad to help your law firm navigate this challenging situation and help you understand your options. Here at Fusion CPA, we work with law firms seeking to apply for the PPP loan program. If your legal entity is hoping to take advantage of Paycheck Protection Program loan forgiveness for law firms, our small business law firm accountants recommend working with an expert to assist you and help ease the process. We have the resources to quickly respond to your needs. Contact us today at 404.955.7338. Our team is here for you.
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