There are many options available to law firms for loans and funding for start-ups, capital, and growth. There are traditional methods like Small Business Loans along with companies offering specific types of funding for personal injury law firms.
Law Firm Financing Is Different From Law Firm Loans
Law firm financing will acknowledge the unearned contingency fees of a personal injury law firm as collateral, something that traditional banks do not accept. The funding for law firms is known as non-recourse capital.
Non-recourse capital allows the lender to receive payment only from the project’s profits and the loan funding. Non-recourse legal funding provides less risk to the law firm in the case that the firm can’t repay the funder. In other words, if the case is closed with no fee, then the personal injury law firm won’t owe the funder anything. However, non-recourse funding is also significantly more expensive and the amount of the funding is limited in comparison to a line of credit or other forms of financing.
Alternatively, recourse funding requires personal responsibility for full repayment. In the event of a default, if the collateral securing the financing is insufficient, the lender can pursue other means of collection. This means that there is more risk to the law firm, but the terms of the loan are usually better.
If your need is more long-term for cash flow to continue the revenue-generating activities, a traditional bank or line of credit might be the better option for your law firm.
Funding Advantages
- Potentially grow your law firm faster with financing by providing funding to invest in case management software, hire staff, specific cases with high costs to go to court, etc.
- Fill the gap in the personal injury law firm’s cash flow. This allows the firm to continue with the marketing plan and other operations to maintain revenue-generating activities as cases are being worked.
- It gives your firm the advantage to work in the plaintiff’s best interest to get the results warranted and not feel pressured to settle early.
- Many states can add the charges from funding case expenses to the expenses that are deducted from the client’s settlement, if included in the personal injury’s terms and conditions.
Deciding If Funding Is Right For You
Funding your personal injury law firm has many benefits. However, like any other agreement you lock yourself into, read the fine print, get the funding company’s references, call the references, and ensure that the funding company understands the personal injury industry. Working with the right funding company can help your firm achieve its goals, while working with the wrong one can be devastating.
Finally, when determining if the firm is ready for funding for growth, inspect the firm’s infrastructure to handle an abundance of new cases. Understand the current case loads of every team member and how the increase will be handled properly. Overextending your team could lead to great issues.
If you are thinking about your growth and how to finance it, reach out to askus@cjadvertising.com. We would love to help guide you in the right direction.
For more information, the American Legal Finance Association (ALFA) publishes a list of best practices.
