Law Firm Financing & Loans for Attorneys: A Complete Guide

January 7, 2022

For a law firm on the rise, increased cash flow at the opportune time can mean the difference between successful growth and stagnant loitering. In this article, we’ll examine law firm financing and loan opportunities you as an attorney should consider to both maintain revenue-generating activities and grow your legal firm.

Law Firm Financing vs. Law Firm Loans: What is the difference?

Law firm financing is a financing structure specifically created for lawyers and legal firms. Law firm loans are part of that structure and are also tailored to the specific needs of a legal firm.

To make an analogy using legal parlance for reference, law firm financing is akin to the overarching legal strategy; it is the action plan consisting of potential legal steps needed to achieve an end. Law firm loans are the potential steps a given legal firm can take to achieve a financially rewarding end.

Law Firm Financing: Pros and Cons

Law firm financing can help your firm grow by infusing it with capital that can then be used to fund a number of tactics and operations including marketing, hiring staff, client intake, systems upgrade, acquisition, and more. With increased cash flow at the right time, your firm can position itself to scale these crucial items and achieve the growth you desire.

The downside of law firm financing or any external loan for that matter is risk. Legal firms seeking to grow by way of financing should consult a trusted financial advisor who can assess how much working capital your firm requires to achieve its goals and how much time it will take to repay the loan.

Such an advisor can also help you select the proper loan(s) to achieve your firm’s unique goals.

Financing Options for Law Firms

Law firm financing allows borrowers to grow their firms by opening up development opportunities for which the firm would otherwise not posses the funding.

Litigation funding is also known as disbursement funding and refers to any expenses incurred while defending a client. Examples of litigation funding include costs of expert witnesses, court filing fees, attorney fees, and other costs associated with litigation.

Working capital refers to the capital a firm uses in day-to-day business operations such as employee salaries, rent, and other operating expenses.

Marketing programs include paying marketing agencies, putting money toward paid advertisements, and/or other marketing efforts with the goal of expanding into new markets and acquiring new clients.

Non-recourse capital is a specific type of commercial lending whereby the lending organization issues repayments only from the project that the loan is funding as opposed to other assets the borrower may possess. This type of law firm financing is specifically tailored to firms with many partners for which attaining individual guarantees from each partner is not practical or feasible. It is not typically offered to smaller firms with fewer than ten partners.    

Best Loans for Law Firms

Business loans– A business loan is borrowed capital that organizations apply toward business needs and expenses they are unable to pay for themselves. Traditional bank loans are the most popular of this type of funding. Prior to granting a loan, banks will assess a potential borrower’s company history, the amount of debt the company has, and other factors related to evaluating the overall risk of the loan.

Small Business Administration (SBA) loans– An SBA loan is a low interest rate loan backed by the US Small Business Administration. The SBA doesn’t lend money directly to small business owners. Instead, it sets guidelines for loans by the lenders with whom the SBA has partnered. This arrangement reduces risk for the lending party and makes it easier for small businesses to qualify for and access loans.

Working capital loans– Working capital loans are short-term loans for small amounts that are typically designed to solve for day-to-day business needs such as meeting payroll, paying outstanding invoices, and settling other operational expenses.

Specific types of working capital loans include:

  • Short term loans, which typically involve a small lump sum of money that will be paid back with interest over a three (3) to eighteen (18) month period.
  • Working capital lines of credit give you access to a pool of funds to be accessed as needed and require the borrower to pay interest only on the funds that are used.
  • Merchant cash advances provide a sum of cash which is repaid by allowing the lender to take a fixed percentage of the borrower’s daily credit card sales.
  • Invoice financing allows small businesses to trade in their unpaid invoices for business capital which frees up cash that can be used to run daily operations.

Business acquisition loans– A business acquisition loan is a small business loan designed for the financing or purchase of an existing business or franchise. The operative word is existing. Business acquisition loans provide borrowers with the opportunity to grow their business via the acquisition of another with an existing reputation, customer base, and track record–all of which should be strong to the point of adding value to the acquiring firm.

Which Legal Financing Option is Best for Your Legal Firm?

The right law firm financing at the right time can help legal firms grow and expand to new levels of success. Choosing the right loan options for your firm is dependent on you and your firm’s unique needs, abilities, and goals. That’s why your legal firm should partner with a trusted financial adviser who can assist in finding the best law firm financing strategy for you.

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