You may be wondering—what is the process for getting a loan or credit line for my contingent fee law firm?
Having a stable source of capital is imperative in order to keep your firm operating to its greatest potential and providing the best service to your clients. But, as an attorney, your time is valuable so being prepared for the financing process can help eliminate roadblocks and help keep you on the fast-track for approval.
The following is a general overview of what you can expect, though the experience will differ from one firm to the next depending on firm structure and needs.
1) Start with an Application
First off, you’ll need to fill out an application. Whether applying for a specialty finance loan or credit line, application questions generally involve:
- basic law firm information: name, address, size and nature of your practice;
- the type and amount of financing you’re interested in securing;
- financial information about your firm and any proposed guarantors; and
- a summary of your firm’s cases.
To learn more about the application process, click here.
Expediting the process means having all of your documents in order and readily available before you apply. This typically entails gathering your current and past financial statements, tax returns for both the firm and each individual guarantor on the loan, future law firm projections and a budget to detail how you plan to use the funds.
Most (if not all) specialty lenders will also analyze your case portfolio that will serve as collateral for the loan. This may range from examination of one large case, a settled matter, or an overview of all of your cases collectively, depending on the type of funding you’re seeking. As such, you should enter the process with a solid grasp of your firm’s case load and expected future attorney’s fees, as those items are likely to be reviewed in greater detail prior to granting approval.
Also, be prepared to discuss both short-term and long-term financial needs. Look beyond the next big case and consider what your firm will require in terms of capital for the next 12 to 24 months. If you have multi-year ventures you plan to take advantage of, be sure to include those in the initial discussion. For help on how to prepare a budget, click here.
2) Embark on the Initial Evaluation
Once you’ve submitted your application, your lender may pre-qualify you for a loan—thereby advancing your funding request to the underwriting stage. This is usually achieved through a high-level evaluation of your financial background, collateral, credit-worthiness and personal character. Many factors come into play during this stage, including any pre-existing debt of the firm or its individual stakeholders.
You’ll likely be asked to allow the lender to obtain credit reports for all of your proposed guarantors. You also may need to schedule an interview with a loan officer, which will give you the opportunity to further explain your financial history and credit needs.
3) Participate in the Underwriting Review
After you complete the initial review and the lender is satisfied with the preliminary information, you’ll then move on to the underwriting stage.
During underwriting, your case or case portfolio will be reviewed in detail, along with your tax returns and financial statements. Upon going over your cases and financial information together, the financing company will assess your assets—specifically the value of current and expected fees—to determine your financing needs and the level of risk posed to the lender.
4) Obtain a Commitment Letter
Once the analysis of your firm and the collateral is finalized, the underwriters will decide whether to proceed with an offer of financing. If the review was satisfactory, the lender will present you with a term sheet that explains the key details of the financing being offered to your firm. This generally includes the principal amount of financing to be extended, interest rate, fees, repayment obligations and length of time the loan will remain outstanding. It also usually specifies the parties to the transaction and identifies any reporting requirements you must meet during the term of the loan.
5) Sign and Close
Once you arrive at a set of terms and conditions that is accepted by both you and the lender, you will receive closing documents for signature. You may also need to provide additional documents along with your closing agreement, such as any lien releases or outstanding information from the underwriting audit.
After you execute the loan package, most lenders have the capacity to wire you the funds immediately.
Timing from the preparation of the loan documents to receipt of funds can vary in large part on how quickly you’re able to respond to your lender’s requests. If you have your paperwork in order, are responsive and available to sign, the process can move along at a quicker pace and therefore reduce the burden on you and your firm.