The COVID-19 pandemic has impacted every aspect of doing business in the U.S. and its effects span all industries. Amid shutdowns, CDC guidelines on personal interaction and gatherings, and managing safety protocols, companies have had to find new ways to move forward with existing business functions.
The legal industry in particular has faced significant changes. Law firms have transitioned from physical offices to virtual collaboration both with colleagues and courts.
Law firm financing companies have been forced to adjust as well, specifically in their underwriting processes.
Prior to the pandemic and subsequent restrictions on personal interaction, many law firm lenders relied heavily on face-to-face meetings with their attorney borrowers and prospective clients. This integral facet of doing business has since become all but obsolete due to the heightened risk posed by the coronavirus.
Here are 3 factors that have changed in the process of financing a law firm:
Some lenders take a very hands-on approach to underwriting and establishing relationships with their law firm clients. This approach relied heavily on in-person meetings between the law firm’s attorneys and the funder’s legal or financial professionals. Building that personal connection not only served to make both sides more comfortable with the transaction and inherent risk, but also resulted in the fine-tuning of data collected. Lenders rely on non-privileged law firm documentation, but also nuanced discussions with the firm’s attorneys to best understand their case portfolio and, in turn, provide the best financial products to meet firm's needs. Having a “two-way street” mindset for in-person interaction was in the best interest of both parties.
With the onset of COVID-19, business travel became a thing of the past, seemingly overnight. Face-to-face meetings were also largely discontinued, so lenders and their law firm clients have had to rely upon virtual meetings or phone conferences to develop a personal connection and mutual trust.
The sharing of information is a critical component in the financing and underwriting activities for law firm lenders, as is the protection of confidentiality and other privileges in connection therewith to both sides.
Accordingly, applications, case lists and financial records all must be supplied in order for a firm to be vetted and to determine the amount of borrowing capacity that a lender will extend. During an in-person meeting, many of these requests can be streamlined and there are a multitude of associates present who are capable of fulfilling the demands quickly. What lenders and borrowers alike have found, however, is that file sharing remotely may be even easier.
As client confidentiality is of utmost concern, uploading documents virtually adds another challenge: information security. You should verify that the manner in which you are sending documents is secure and consider even only showing lenders certain highly-confidential documents through screen sharing.
Progression of Cases
Court systems at every level and in every jurisdiction experienced delays when the pandemic took hold in the U.S.—trials became nonexistent and are only just beginning to resume in altered formats that adhere to strict safety measures.
This pause impacted both law firms who need financing and those who provide it. Now, lenders may request an unscheduled audit of a firm’s case portfolio to gain and updated picture of where the litigations stand in light of coronavirus-related delays and how they’ve been affected by COVID-19 generally. Perhaps capital was budgeted for one purpose, but must now be shifted in its use, to adapt to the unforeseen changes, or your firm may now suffer from an unanticipated cash flow gap.
Law firm financing companies must continually update their underwriting processes to keep pace with the daily changes to the legal industry and court systems in light of the health crisis. The process may remain fluid moving forward, so that both the law firm and the lenders can continue their well-established relationships in a productive manner. Lenders who are established in the industry and that are well-versed in contingent-fee litigation will be able to quickly adapt to these changes and continue to be conversant in the challenges faced by your firm.