Finance your practice from the ground up, or just refurnish it.
What financing options are available for law firms?
You can finance a law practice with a variety of options. Here are the top six to consider:
- Small Business Administration (SBA) loans.
Certain banks and online lenders offer loans that fall under SBA guidelines. These loans also include government guarantees to the lenders, which can result in lower interest for you. Loan amounts can be up to $5 million. Keep in mind it’ll typically take at least a month from the time you apply to the time you receive funds. So if you need fast financing, this won’t be your best option.
- General purpose business loans.
These fixed-term business loans are intended for any legitimate business use. You can get them from both online lenders or banks. If you’re unsure exactly how you’ll use the funds and want the flexibility to spend some on office furniture and some on staff payroll, for example, you can do that with a general purpose business loan.
- Invoice financing.
Your law practice likely bills clients through invoices. Invoice financing could be a viable option if you have large invoices pending payment and could use a cash advance of the billed amounts.
- Personal loans.
If you’ve just started your practice and are having a difficult time qualifying for a business loan, you may have better luck with a personal loan. You can use most personal loans for business expenses. Keep in mind you’ll need to track what you paid for closely if you plan to deduct the interest paid on the personal loan as a business expenses.
- Business credit cards.
A credit card for your business can provide additional working capital to cover everyday costs of running a law practice. Or it could simply cover a large one-time purchase like new computers.
- Personal credit cards.
Similar to the personal loan, a personal credit card may be a more reasonable option if your law firm is new and doesn’t qualify for a business credit card.
Compare top business loan offers
How do I compare my financing options?
A large part of deciding what solution is best for you lies in what type best fits your situation. Short-term credit is generally better for smaller purchases that you can pay off quickly, whereas something like a full-blown loan is better for more costly needs. Once you figure that out, there are some basic qualities to compare. Ask yourself these four questions when comparing financing options for your law firm:
- How much do I want to borrow?
The amount you need will shape your options. Certain lenders may not be willing to loan the full amount you need, while others may try to sell you on a higher amount. It’s important to only borrow the amount you need. Overborrowing can lead to unnecessarily paying more in interest.
- When can my firm afford to repay loan?
Consider budget allocations for more than just recurring costs to better gauge your repayment limit. Once you know your firm’s monthly revenue, you’ll know what’s the maximum monthly payment you can afford. From there, you can determine how long you’ll reasonably need to repay the loan and pick a lender that offers that repayment term.
- What’s the interest rate I’m being offered?
If your law practice is more established, you may qualify for multiple offers and then be able to compare based on interest rates. For fixed-term business loans, interest rates greatly affect how much your loan will cost in the long run.
- Am I comfortable with the fees and costs?
Certain fees and costs may not be stated upfront. Look over loan agreements and ask lenders about late fees, prepayment fees, and other additional costs that may affect your payments down the road.
What do I need to apply?
You’ll run into different requirements for applying with different lenders. However, there are some common criteria that you’ll need to have:
- Bank account statements and balance sheets. Your firm’s bank accounts will have monthly statements that lenders look at. In addition, lenders will want to see your firm’s balance sheet that shows cash assets versus debt.
- Current asset documentation. What you already have can potentially be used as collateral and might soften eligibility requirements or get you a better interest rate.
- Personal documents. Standard personal information and identifying documents are generally required to process a loan request.
- Proof of your ability to repay the amount borrowed. This one is key. Your ability to borrow is directly proportional to your ability to make timely repayments in almost every case.
Mistakes to avoid when applying for financing as a lawyer
- Not having a clear vision and means of repaying the loan. You’re much more likely to receive financing if you can show the lender where you’re going and how getting there will help you pay back the loan.
- Not knowing the eligibility criteria. Credit and loan applications often require a good deal of paperwork and a hard credit check. Save yourself time and a potential hit to your credit by knowing the requirements and if you have a good chance of qualifying ahead of time.
- Having unrealistic expectations based on your law experience. Less experience may mean you won’t get a good rate or be able to borrow as much. Go in with the right expectations.
- Ignoring your current business assets. Know what you already have and how you can use it as leverage. Taking out a secured business loan could get you better rates.
- Not knowing your credit score. Knowing what your credit can get you is key. Many business lenders consider your personal credit score when evaluating your application.
6 honest tips to keep your firm running smoothly
- Learn how to work with your peers. Buying your fellow lawyers lunch or a beer once a month can go a long way. If you build a good reputation, you may get referred more clients.
- Send out your invoices in a timely manner. You can’t get paid if you don’t bill your clients. Make sure to go over your queue, what you’re working on, and what you’ve finished on a regular basis.
- Make a clear plan and follow it. Following a plan can keep you goal oriented and accountable for financial decisions.
- Budget for your living expenses. It would be unfortunate for your law practice to fail because you couldn’t support yourself. Be sure to allow for all recurring home expenses and incidentals.
- Look into student loan forgiveness. Your law degree likely came with a lot of student debt. There are both loan repayment assistance programs and loan forgiveness programs. Your area of law and time employed usually contribute to your eligibility in these programs.
- Overworking yourself will cause your personal life and work to suffer. Working yourself to the bone can cause burn out, not to mention damage personal relationships. Practice self care and listen when loved ones express concern.
You can find financing for various needs in the field of law. Visit our business loans guide if you want to assess your needs and compare your options. Comparing before you apply can save you money down the road. Just make sure to keep on top of your invoices and stay on budget.