The average startup cost for a law firm is about $20,000. The price can get up as high as $37,000.
If you’re like most aspiring attorneys who are fresh out of school, you don’t have that kind of cash in your bank account. While you can take out a loan to get your funding, the interest rates are ridiculous.
Most choose to go with some form of law firm financing instead. Not only will it improve your cash flow, but it will also reduce your financial risk and allow you to provide exceptional service for your clients. Continue reading to learn more.
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What Is Law Firm Financing?
Law firm capital financing refers to any type of funding used to pay for a practice’s expenses including litigation and office supplies.
This funding can take the form of a line of credit or revenue-based financing. Some firms have to take out a business loan, but that should be used as a last resort.
Financing vs. Loans
Law firm financing can help you improve your cash flow because it’s tailored toward attorneys.
Bank loans are more difficult for attorneys to obtain. This is mostly because a lot of lenders don’t accept contingency fees as a form of collateral.
This being said, getting a loan isn’t impossible, but it does take a while. If you’re in a hurry to get your law firm off the ground, you may not get your funding as fast as you would like.
Benefits of Law Firm Financing
Law firm financing can do more than help you boost your cash flow. It can also allow you to grow your law office.
Financing will make your firm less vulnerable to financial risk, and it will let you improve your client’s overall experience.
Improve Your Cash Flow
It takes a lot to run a law firm. You need employees and clients. Without the proper amount of marketing, you won’t attract either.
Hiring candidates and creating a website that will allow you to get your name out there all take money. Without a consistent cash flow, you might not be able to afford it. Financing will give you the funds you need to keep the revenue coming in.
Faster Growth
It will be difficult for you to grow your firm if you don’t have the necessary resources.
You’ll need a paralegal and practice management software to keep your operation moving smoothly. Financing will give you plenty of cash to afford both.
Less Financial Risk
Taking out a loan will cost you more than it’s worth due to the high-interest rates. You can expect to spend well over 20%.
If you’re not able to make enough to cover the expense, it will set you back financially.
Client Experience
The more money you have, the more services you can offer your clients. They’ll enjoy having access to flexible payment options, fixed fee billing structures, and unbundled legal services.
Not every law firm can offer these perks, so if you can, it will pull you ahead of your competition. It will also help you bring new clients through your doors.
What Are Your Options?
As far as financing goes, you have plenty of options. You can try to find revenue-based funding or look into opening a line of credit.
Credit cards will allow you to make smaller purchases, and if all else fails, you can attempt to take out a loan.
Revenue-Based Financing
With revenue-based financing, you’ll promise a portion of your future revenue in exchange for the cash you need to start your law firm.
You’ll continue to pay every month until you’ve wiped your debt clean. The main benefit of going this route is that you’ll receive your funding quickly.
Lines of Credit
With a line of credit, you won’t have to make a payment every month. It’s a borrowing limit that you can tap into whenever you need to make a purchase.
Once you reach your limit, you’ll have to pay your balance due. As you can imagine, this financing option is more flexible than a revenue-based one.
Credit Cards
Many small businesses have credit cards. It’s a great way to cover small purchases, and the interest rates are pretty reasonable.
You do have to be careful not to overspend. If you rack up a bunch of credit card debt while you’re not making a lot of revenue, it could prevent you from taking out future loans.
Loan
As a newly established law firm, you may find it difficult to qualify for financing. If that’s the case, you’ll have no choice but to take out a loan.
There are both business loans and personal loans available. If you get turned down for both, can always talk to family and friends.
Cash
If you have the personal funds to start your law firm, that will prevent you from opening your business while in debt.
There are some disadvantages to using your own cash. There are certain tax implications behind it. A money expert at Litigation Finance would be able to tell you more.
Get the Money You Need for Your Law Firm
It costs thousands of dollars to open a law office. If you don’t have that kind of money, you’ll have no choice but to find law firm financing.
As you can see, there’s plenty of funding available. You can make small purchases with a credit card. There are also lines of credit, and if need be, loans. Start exploring your options today.
For more tips that will help you keep your business finances in check, search through our blog.