Applying for a Line of Credit? Here’s What to Expect

At first glance, the application process to secure a line of credit from a litigation financing company can appear somewhat daunting. However, there are some steps you can take to be better prepared, making the process quicker and more seamless.

What Should You Do Before Applying?

Before applying for a line of credit, you should take an honest look at your current and past financial condition. How does your credit score look?

As part of the application process, you’ll probably need to give the lender authorization to view your score. If it‘s on the lower end, it may be beneficial to first take steps to improve your credit score. While a lower than average credit score isn’t necessarily going to halt your application, a higher score will leave the lender with a better first impression.

The Ins and Outs of the Application

You’ll begin the application process by providing the lender some very basic information about your firm, including contact information, entity type, composition of employees and practice areas. The application will likely also ask about the firm’s current case inventory and for information on total disbursements and estimated fees owed to the firm. It may be useful to prepare the following documentation in advance:

• Valid photo identification for each potential signatory
• Organizational documents for the law firm and proof of good standing
• Proof of malpractice insurance for the firm
• Current case list (Tip: it helps to include case names, docket numbers, summaries, co-counsel, outstanding disbursements and the estimated gross settlements, legal fees and resolution dates)
• Financial statements disclosing assets and liabilities, balance sheets and aged accounts payable
• Individual and law firm tax returns for the last three years
• Budget and case projections for the upcoming 24 months
• Copies of any other loan or financing agreement involving the law firm

Additional Considerations

If your firm already has financing, you‘ll need to decide whether you are willing to pay off your existing loan using the new financing. A standard requirement of litigation finance companies is that they are in a first lien position on the collateral securing the loan. As such, if you’d like to keep your current financing in place, you’ll likely be required to help secure an intercreditor agreement between the two lenders so that both parties are satisfied with their respective rights regarding the secured collateral.

On the application, you’ll also have to disclose whether you or the firm have previously filed for bankruptcy, have any open and unpaid tax liabilities, are/were a party in any litigations/judgments and/or have any active liens filed against you or it. If the answer to any of these questions is “yes,” then this could be a red flag to a lender. You’ll want to acknowledge these hurdles and show the lender that either you are not a high-risk borrower or explain to them why these factors are inconsequential.

If you’re unsure if you will qualify for a line of credit and would rather not provide all of the required documentation immediately, you can simply send the basic application and credit authorization first to allow the litigation company to perform some precursory underwriting. A reputable funder will be upfront about whether or not your law firm is a good candidate for its product. You can provide the additional information at the appropriate time, and before you know it, your firm will be on its way toward securing that needed line of credit!