Millions in PPP loans gave law firms breathing room

Indiana law firms and legal nonprofits received nearly $200 million in Paycheck Protection Program loans, but managing partners said the money had a nuanced impact as the financial boost provided some peace of mind during a very uncertain time and helped keep their firms positioned to meet client demands.

Of the few law firms who responded to inquiries from Indiana Lawyer, The Nice Law Firm provided the example that others echoed. Robert Nice, managing partner, said his firm was never in danger of closing, and it had the cash reserves to keep all its employees and maintain payroll through the worst of 2020. But the $367,966 the firm received from two rounds of PPP loans took away some of the sting, he said, and helped position the firm to grow.

In June, The Nice Law Firm expanded into Greensburg through an acquisition and is now looking to add two more attorneys to its staff. With the loans, the firm still had its cash reserves which, if the firm had tapped into its savings, it likely would have had to forgo the acquisition.

“It took away the concern that business owners legitimately have when somebody reshuffles the deck and changes the rules,” Nice said, referring to the upheaval caused by COVID-19.

The PPP initiative was part of the CARES Act passed by Congress just as the pandemic was shuttering the U.S. economy in March 2020. Starting with an appropriation of $349 billion, the program offered forgivable loans to incentivize entities such as small businesses and nonprofits to keep their employees on the payroll. The money could be used to pay the workers as well as to cover rent, mortgages and utilities.

Capitol Hill made several more appropriations and loosened the rules before ending the program on May 31. According to the final data report released from the Small Business Administration, 11.82 million loans had been approved nationwide totaling $799.83 billion.

Indiana small businesses received $4.44 billion in PPP loans, the SBA reported. An analysis of the SBA data by Indiana Lawyer found Hoosier law firms received a total of $199.72 million over the two rounds of PPP loans. The bulk of the firms, more than 1,000, received less than $150,000, while just over 200 law offices secured more than $150,000. A searchable database of Hoosier firms’ PPP loans is available here.

The popularity of the PPP does not surprise Bruce MacEwen, president of Adam Smith Esq., a law firm management consultancy based in New York. He explained the program was first introduced when the economy was stumbling and managing partners were doing everything they could to preserve cash and save their firms.

As the funds became available, MacEwen said the sentiment among law firms was that if they qualified, why not get a PPP loan?

“I think it gave people breathing room,” MacEwen said. “It certainly preserved the confidence of lawyers and staff in the enterprise, and that’s actually really, really important. A law firm, as we’ve seen several times in recent history, can collapse really, really fast. “

Stuart Gutwein

Gutwein Law, based in Lafayette, received a $407,000 PPP loan in April 2020. Stuart Gutwein said the financial support had a positive impact as the firm not only avoided laying off employees and reducing salaries but also was able to add team members in 2021 and launch a new office in Evansville.

As with The Nice Law Firm, the ripple effect of the program buoyed the Gutwein practice. The expansion would not have been “as straightforward” without the PPP loan, Gutwein said. “We were able to continue operating and planning for the future with minimal disruption to our strategic plan.”

High and low

Among the Indiana law firms receiving PPP funds, Ice Miller LLP borrowed the largest loans at $8.08 million while Charles Hear, solo practitioner near Brazil, secured a smaller loan of $10,200.

Both firms used the money to cover payroll as the economy tanked during the early days of the pandemic, yet each see the funds as having had different effects on their operations. Neither legal practice would have gone out of business if the loans had not been available, and even though both firms did have their loans forgiven, paying them back would not have created an undue hardship.

Still, Ice Miller said the loans were beneficial, but Hear was ambivalent.

Steve Humke

Steve Humke, chief managing partner for Ice Miller which has seven offices including one in Indianapolis, said the loans kept the worst from happening. The firm furloughed 27 employees across all offices, which included staff and attorneys, and eventually terminated 20 of them. Also, it reduced some salaries for employees making more than $50,000 and dipped into the partners’ capital fund.

However, Humke said the financial boost allowed the firm to tighten its belt in a much more measured way. It did not have to make larger cuts in personnel and compensation, so by July salaries had returned to pre-pandemic levels for non-partner attorneys and staff, and by the end of the year, the money they lost when their paychecks were reduced had been replaced. In addition, partners’ capital reductions were being restored.

“The disruption of losing your workforce really can’t be overstated once you cross that line where you’ve cut into people you’re going to need immediately upon when things get better,” Humke said. “It’s hard to find people. That disruption could have taken years to work out.”

Most risky was slimming down too much and hindering the firm’s ability to respond to client demands when the boom followed the bust.

Ice Miller’s business clients were trying to navigate the same uncertain waters with no idea how bad the economy would get. Consequently, some informed their attorneys they would not be paying the legal bills until the end of 2020.

The economy did not crater as predicted. Some businesses were able to return to a normal pay cycle, but law firms like Ice Miller still had to meet the increased workload on a narrowed revenue stream.

“(I)f we cut costs too deeply so that you can keep your cash flow positive, you may not be able to service your clients as the clouds part,” Humke said. “… Those loans made a big difference. It avoided people having to do something that with the benefit of hindsight was crazy.”

Hear has a different perspective.

He opened his office in 2003, handling primarily criminal and family law cases. The work dropped significantly in 2020, but business has been picking up this year, although it is still not the 2019 level.

Just Hear and one administrative assistant work at the firm. The benefit of a small office, he said, is co-workers become like family and develop a loyalty which makes them willing to stay and weather tough times.

In such an office environment, there’s no problem if the paycheck is a few days late, he said. But with the PPP loan, the firm was able to keep making payroll on time.

“Honestly, it had a minimal impact on the firm,” Hear said of the federal support. Without the funds, “we’d have gotten through.”

Determining the true impact of the PPP loans on the legal profession is tricky because, as MacEwen pointed out, so much has changed from the spring of last year. The dire predictions did not come true because the economy rebounded and law firms got busier, particularly in the area of mergers and acquisitions.

Still, he continued, law firms have not gotten complacent because they received PPP money. They are still “juggling 17 balls in the air,” trying to work on client expectations while dealing with overwork and burnout among employees along with figuring out when to reopen their offices.

“I wouldn’t say anybody is exactly in a hammock on the beach,” MacEwen said.•

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