On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law, and includes a range of provisions that impact the professional services industries. While there is no specific guidance for professional services such as architectural and engineering firms, legal firms, and financial services companies, there are some precautions you can take to reduce the impact on your business.
Many professional service companies have been directly and indirectly impacted by embracing a remote working environment and investing in additional online training and IT infrastructure to continue to meet the needs of their customers.
The Small Business Administration (“SBA”) published a summary document on April 16, 2020, outlining Paycheck Protection Program (“PPP”) loan activity. Categorized by NAICS codes, the professional services sectors have been major recipients of the PPP loan program.
- Loan recipients may not apply for loan forgiveness until at least eight weeks after receiving the loan proceeds. Since principal and interest payments on the loan are deferred for six months, we foresee a two- to three-month period after the eight-week period ends when borrowers should make their loan forgiveness application to the lender who made the PPP loan. For more information on PPP loan forgiveness, read our article “Asking for PPP Loan Forgiveness.”
In reviewing the impacts of COVID-19 over the last few months, below is a summary of targeted considerations for the professional services industries:
Engineering & Construction Industry
We may not see the long-term impacts of COVID-19 for years to go come, but we have seen the engineering and construction industry already feel the effects of a shortage of skilled workers, and retaining their current workforce to remain competitive in the future. Many companies have significant relief available to weather the storm through benefits provided to U.S. businesses and their employees through loan programs and payroll tax credits.
Under the CARES Act, several provisions support engineers, developers, real estate businesses, investors, owners and construction projects, and provide more latitude to use losses from prior years to offset tax liabilities. Below is an overview of those real estate-related provisions.
- There is no immediate relief for projects temporarily stopped or shutdown, but provisions of the CARES Act may offer relief to individuals and companies who are affected by the cumulative impact of project suspensions or terminations. The closure or suspension of construction projects affect the overall profitability of a business and the income of employees. The Coronavirus Economic Stabilization Act of 2020 (“CESA”) provides loans to U.S. businesses that have not otherwise received “adequate economic relief” in the form of loans or loans guarantees provided under the other provisions of the CARES Act. However, under CESA, loan forgiveness is not available. Under CESA, there are two loan programs, which total more than $500 billion in funds.
- The CARES Act does not provide direct funds to offset the cost of remote working arrangements or additional precautions taken to protect workers in the field, however, Section 3610 of the CARES Act offers potential relief to federal contractors whose employees who are unable to perform work on a job site that has been approved by the federal government during the COVID-19. Similarly, the immediate costs of adjusting working conditions through remote work are not specifically addressed by the CARES Act.
- It is critical to monitor and track any delays, overruns or interruptions to your projects. The CARES Act does not provide assistance for additional costs, overruns or interruptions experienced by individual projects. That will be important both for the allocation of additional costs on the project level and for seeking relief for businesses that suffer from COVID-19 impacts. Furthermore, contractors and owners involved in affected projects may want to review contract terms to protect their rights and determine the associated costs of the impact from the delayed or terminated projects. Relief may be available with respect to financing for some projects and on the business level as project impacts accumulate on the bottom line.
Legal Industry
The CARES Act funding of more than $2.2 trillion dollars in stimulus will no doubt be felt within the legal community. Specific law provisions that will impact the legal industry include the following:
- According to the American Bar Association, emergency funding of $50 million for the Legal Services Corporation to help address the increasing legal needs of low-income Americans caused or made worse by the coronavirus.
- The Federal courts requested over $11 million for information technology needs, $7.5 million to for video conferencing equipment to enable a more flexible remote working environment, $9.4 million for public defender services, and an additional $1.6 million for costs of supervising offenders released from prison or awaiting trial and $2.2 million for court security. Furthermore, the Supreme Court would get an additional $500,000 for remote working for staff and other critical activities necessary during COVID-19.
- The CARES Act also contains $400 million in new Help America Vote Act emergency funds. These additional funds will aid in the preparation for and response to any impacts on the 2020 federal election cycle in the wake of the Coronavirus.
- The CARES Act supports housing on a number of fronts, including $7 billion for affordable housing and homelessness assistance programs. The additional funding will provide much needed assistance for low-income and working Americans to help avoid evictions and foreclosures. These funds will also help those experiencing homelessness.
- The CARES Act supports public safety and federal prisons through the allocation of $100 million in funding to the Federal Bureau of Prisons to assist with related needs to the facilities, staff or directly for the inmates. According to a press release from the Office of Public Affairs, the Department of Justice is making available $850 million to assist public safety agencies. The American Bar Association offers some COVID-19 related resources and CLE webinars at their website.
Financial Services Industry
Like most other industries, there are areas of the CARES Act that provide relief for financial services providers. As we know, financial institutions are facing many unique challenges related to the CARES Act and the PPP. Some of these provisions include:
- The financial services industry has faced various challenges in the past, including the 2008 economic recession. Given the undue stress of the Coronavirus pandemic, the industry will need to shift to monitor such areas as credit risk capabilities, business and operating modeling and fraud prevention, data analytics reporting and technology platforms.
- An additional $310 billion in funding for PPP loans was announced on April 24, 2020. The bill also approved an additional $50 billion in appropriations for the Economic Injury Disaster Loan (“EIDL”) program and an additional $10 billion in funding for EIDL emergency grants. This increase in funding will impact lenders greatly, particularly with respect to Bank Secrecy Act/Anti-Money Laundering (“BSA/AML”) programs. Lenders should carefully evaluate the impacts of PPP on the AML requirements.
- Due to the economic impacts of the Coronavirus, the CARES Act revives the Bank Debt Guarantee Program and authorizes the Federal Deposit Insurance Corporation (“FDIC”) to guarantee noninterest-bearing deposits that exceeds the $250,000 per account insurance limit through December 31, 2020.
- The CARES Act provides temporary moratorium on foreclosure and evictions of borrowers with federally-backed mortgage loans, including fees and penalties related to nonpayment of rent. Section 4023 of the CARES Act, borrowers with a federally backed multifamily mortgage loan may request a forbearance for up to 30 days, with two 30-day extensions.
Cherry Bekaert will continue to monitor the latest legislative changes that may impact professional services firms and share updates on the CARES Act and related provisions. If you have further questions, please reach out to our Cherry Bekaert professionals for more guidance.
