Law Firm Financing: The Top Law Firm Loans

If you’re looking to start your own law firm, congratulations. Hanging your own shingle is a huge accomplishment, and gives you the flexibility to take on the cases you want while also running your business the way you want to. Plus, you get to take on the exciting challenges of being an entrepreneur—even if that means overcoming a few hurdles along the way.

Getting law firm financing is similar to the business loan process for other small businesses. You should anticipate spending between $5,000 and $15,000 on your law office before you begin seeing clients.[1] You’ll also have to budget for recurring expenses, such as software, equipment, and any expansion plans you might want to factor in as your practice grows. And don’t forget salary costs for office staff, either!

Although you’ll need a good chunk of change to get your practice up and running, there are several advantages to getting law firm financing that other industries don’t necessarily have. For starters, you’re in stronger shape for some loans based on your work within a high-paying field. There are also a few financing sources that are unique to esquires, as well, which can make it easier for you to access capital. Let’s go through some of your top options for law firm financing, as well as what you’ll need to make your application shine.

The Best Law Firm Financing Options

There are several options out there for law firm financing. You can choose from conventional loans, such as SBA loans or bank loans, short- and medium-term business loans, or even a few other options that don’t require you to put collateral up front in order to secure financing. Here are a few of the best law firm financing options depending on your needs and credit history.

SBA Loans for Law Firm Financing

We’re huge proponents of U.S. Small Business Administration loans, also known as SBA loans. SBA loans are actually loan guarantee programs, which means that the administration helps small business owners get access to bank financing. Like it or not, most banks look at investments in small business as risky bets—they’re more accustomed to working with larger clientele who have a longstanding financial history.[2] Small businesses—even if they’re law practices—may be too unknown an entity for banks to bite.

The SBA helps small businesses overcome these risks by guaranteeing up to 85% of the loan’s total. This means that the administration provides a promise to the lender that the SBA will pay back all but 15% of the loan’s value if the borrower can’t do so themselves. This mitigates risk, which means it’s easier for you to get access to excellent bank rates, generous terms, and a larger sum of cash than alternative lenders might be willing to provide.

SBA loans come in several shapes and sizes. For law firm financing, your best bet is an SBA 7(a) loan, which gives you a large loan amount to fit your needs. Plus, 7(a) loans come with very few restrictions on how they can be used, which means you can use the money for anything from getting your practice off the ground to buying office space.

Plus, you’ll enjoy long repayment terms and lower interest rates than you’d get through other lending options. A word of caution, though—the SBA loan application timeline can take a while, given how much information the application asks for. That, and SBA loans are highly competitive, given how attractive they are to borrowers. If you need money quickly, or aren’t sure you’d get approved, you may want to consider other opportunities.

Bank Loans for Law Firm Financing

Although SBA loans offer the best law firm financing option available, they’re not the easiest loans to get. This is particularly true if you can’t spend the time it takes to wade through the paperwork needed to complete your application, or if time is of the essence. In those cases, you might want to consider a regular bank loan as your next best bet.

Bank loans provide a great avenue for law firm financing, since they provide you with competitive terms and interest rates, depending on the size of your loan and your credit history. Small businesses sometimes have a problem getting approved for traditional bank loans, given that they borrow less than most bank clients and have less of a proven business track record.

Law firms are better positioned for bank loans than other small businesses, given how much anticipated revenue they generate. These businesses also have less overhead costs, which means you can put more of what you make toward repaying your loan. You can expect to pay more in interest if you go with a bank loan versus an SBA loan, but you’ll likely get a faster decision on your application, which is great if you need cash faster than the SBA loan process provides.

Short- and Medium-Term Loans for Law Firm Financing

Although your odds of getting a bank loan to finance your law firm are better, you might still have an uphill climb getting financing this way. Or, let’s say you need financing more quickly than the bank loan approval process allows. Finally, perhaps you don’t have a stellar credit record, which makes SBA loans and bank loans unlikely for you. That’s where short- and medium-term loans can be your best option.

Bank loans typically take two to six weeks before you get a decision, which might take too long for your needs. Short- and medium-term loans provide you with fast access to cash—sometimes even within 24 hours of your loan application—and do not have tons of restrictions on when and how you use your loan. You can also get approved for short- and medium-term loans with a less-than-stellar credit record, or if you don’t have a ton of prior business history under your belt.

A word to the wise, however: Short-term loans tend to be more expensive than other financing options—these loans usually charge double-digit interest rates and, depending on the kind you choose, may have daily or weekly repayment terms. If you qualify for SBA or bank loans, they should still be your first avenue for law firm financing. But if you need money quickly, or don’t qualify for other loans, short- and medium-term loans might be the best move for you.

Business Line of Credit

If you need access to cash periodically, a business line of credit might provide the perfect kind of law firm financing for you. A business line of credit isn’t quite like the other law firm financing options we’ve discussed, but this is its best advantage. Instead of pulling out a large sum of cash at once, paying off interest as you go along, a business line of credit lets you take out money when you need it. You borrow against the total amount of credit provided to you by your lender, and pay interest only on the money you’re currently borrowing.

A business line of credit is similar, in some respects, to a business credit card. You can withdraw the money you need for purchases whenever you need to make them, within the term that the business line of credit is open. This way you won’t get socked with high interest payments on money you might not need to use. Better still, you can draw from your business line of credit as often as you need during its lifespan, so long as you don’t borrow more than the prescribed amount allowed within your terms.

This is a fantastic option for law practices that may already be established, but need help paying for periodic purchases. Say, for example, that you need to buy a new printer—you can withdraw from your line of credit to purchase the printer, but don’t have to take out a loan for more than the printer’s price (and pay interest on the cash you’re not using). You’ll need to have good credit, as well as a solid application, in order to qualify.

Litigation-Based Law Firm Financing

Law firms can access cash from lenders in a unique way that is not available to other kinds of small businesses. Some lenders—such as Amicus Capital and Advanced Legal Capital—will loan you money based on your anticipated court case wins or settlements. Basically, you’ll get an advance on the funds you hope to win as part of your clients’ court cases, and repay the loan based on the total you receive.

Amicus Capital, for example, will make a determination about how much money you can borrow based on your firm’s caseload, as well as the estimated amount of money you’ll make if you win your cases. Some of these lenders require you to pay back your loan whether or not you win your case, while others will only charge interest on your loan if you do not win your case. This frees you up to make interest-only payments while you seek out other options for paying back what you’ve owed. Just be certain that you are confident in your odds of getting cases settled in your favor before you dive in.

Getting Started With Law Firm Financing

Regardless of the law firm financing opportunity you go with, be sure you know your needs and your options. Every loan comes with different conditions, terms, and fees. Thus, not every loan is created equal. No matter which law practice financing option you choose, your first step should be making sure you understand all of your options. Once you know exactly what you need financing for, as well as your own credit history, you can make an informed choice about which one to choose.

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Founding Editor and VP at Fundera at Fundera

Meredith Wood

Meredith Wood is the founding editor of the Fundera Ledger and a vice president at Fundera. 

Meredith launched the Fundera Ledger in 2014. She has specialized in financial advice for small business owners for almost a decade. Meredith is frequently sought out for her expertise in small business lending and financial management.

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