Like any other small business, law firms have financial needs, especially when it comes time to expand business operations. If you’re running a law firm and you’re considering which source of law firm financing will benefit your operation the most, you should think about what you need to finance as well as your ability to pay back a possible loan, since each kind of lender will have different requirements for approval.
Many law firms choose banks to finance assets such as computers, telephones, a new building for the firm or to expand hiring for new employees. You can expect to get a line of credit or a loan that can be paid back in fixed installments. However, this form of law firm financing may require you to guarantee the loan yourself, which could put your personal assets at risk if you default on the loan. It is advisable to pursue bank financing if you already have a good relationship with the bank, since they will want to maintain a good relationship with existing clients.
For a lender that better understands the operation of a law firm, you could turn to a law firm lending company. They will take a look at your cases in progress and use the likely fees you’ll receive from them as collateral. As with banks, you can apply for lines of credit or traditional loans. As added benefits, you may not need to personally guarantee the loan and the time to approval will be faster. However, these kinds of loans can be more expensive and could be troublesome to pay off. You may want to try these lenders if your cash flow is very strong and if time is a factor in getting law firm financing.
Since law firms qualify as small businesses, you would also be eligible for a Small Business Association (SBA) loan. SBA loans are more flexible in how the loans are negotiated and can also offer longer amortization periods. In addition, there are special SBA programs that benefit minority business owners, women, or businesses located in rural communities, so check to see if you qualify. While the SBA can provide help that makes the difference in getting approved, be aware that it does involve more paperwork and it may extend the time to securing a loan.
With these options in mind, you’ll be able to weigh the benefits and costs of each source of law firm financing and pick a lender that will not only suit your immediate needs but benefit your law firm in the long run.