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Law Firm Financing FAQ

What is Law Firm financing?

Law firm financing, attorney loans, and law firm working capital lines of credit are terms used interchangeably to describe financing (working capital loans) provided to trial and personal injury law firms and attorneys who work on contingency basis. . The funding provides them the means to properly mount a case against well-funded defense firms representing large, deep pocketed corporations and insurance companies.

How can Law Firm Financing be used?

Law Firm Financing is available for a wide array of uses, to; hire expert witnesses, pay for case and trial costs, litigation support, general operating expenses, tax distributions, marketing and business development. In addition, financing is available for fee advances on settled cases, verdicts and cases on appeal.

Who is eligible for Law Firm Financing?

Plaintiff’s trial lawyers working on contingency make up the vast majority of law firm financing clients.

What types of cases can be financed?

Virtually any type of case can be financed, including MVA, product liability, pharmaceutical, labor law, New York labor law, class action, wrongful termination, sexual harassment, BP oil spill, DePuy hip, Zimmer knee, Avandia, Jones Act, FELA, Mesothelioma, Silicosis, transvaginal mesh/abdominal mesh, wrongful death, medical malpractice, wrongful imprisonment and many more.

What stage of litigation do the cases need to be in in order to be considered?

Virtually any stage–from pre-litigation to settled cases and jury verdicts, to cases on appeal. The stage in which the case is in will be taken into consideration when determining an advance amount and structuring the loan.

Are there restrictions on how the funds can be used?

There are generally nor restrictions on how the funds can be used. Attorneys have used loans for distributions to pay taxes, hire expert witnesses, payroll, business development, general operating expenses, litigation support expenses and marketing.

How much is available?

Most funding companies will advance as little as $25,000 and as much as financially warranted in each individual situation--and they'll work with each applicant to determine how much is right for their individual situation.

When does it need to be paid back?

The loan term is typically two years, but generally the borrower repays their loan much sooner, in part or in full, as the borrower receives fees and expense reimbursement from settled cases.

What are the monthly payments?

Monthly payments by ACH are typically required and vary depending on the loan amount. However, most funding companies will work with the borrower to tailor a payment schedule that fits within their cash flow expectations and requirements.

How is the loan paid back?

Loans are repaid when you settle cases and receive fee income and expense reimbursement. The borrower is required to remit funds to the funding company from the proceeds of their cases as they settle.

Can I borrow multiple times if I pay off or pay down my loan?

Yes. If you pay off all or a part of your loan and if you still meet our credit and collateral criteria, funds can be available on an ongoing basis.

Does it matter who I borrow from?

Yes. Dealing with a direct lender is like working with a bank, except a legal funding company has experience in your industry. The process, therefore, is much quicker, easier and less disruptive--and it insures timely funding of your loan upon approval.

What are the lender’s requirements? How do I qualify?

A number of important factors are taken into consideration including the quality of the firms’ case load and the amount of estimated future fee revenue, as well as the partners’ credit history. Time in business, historical revenues, case types and prior case results are also important considerations.

What is the application review process?

Upon receipt of a completed application and all the required documents, the legal funding lender will obtain credit reports and perform background research on the principals and the firm. Focus will be on the credit histories of the partners and the cases being offered as collateral. Upon approval, loan terms are finalized and documents will be drafted. Upon receipt of executed loan documents and after a site visit, closing can occur and funding will take place.

How long does it take to receive funding?

Funding approval can be granted within just a couple of days after receipt of all application documents, and funding occurs upon return of a signed contract. Some lenders offer expedited processing on smaller loan sizes.

Can I deduct the interest charges?

In most situations interest is a deductible business expense--but please check with your financial advisor about your situation for financial and tax advice.

Can I charge my clients the interest I pay?

While we cannot give an opinion, many jurisdictions do allow an attorney to include interest and loan fees in case expenses if properly disclosed and agreed to by the client. This can effectively reduce your interest cost to zero. We urge you to check with your local bar association for more information on this topic.

Does my competition borrow?

Yes. A significant percentage of law firms do borrow to support their firm and expand their practices. Many borrow for case costs and include a reasonable amount of interest and fees in their reimbursable costs at settlement. By not having adequate liquidity, you could be putting your firm at a competitive disadvantage.

Are the loans recourse or non-recourse?

Lawsuit funding loans are full recourse, meaning they are guaranteed by the principals of the firm.

What do I or the firm need as collateral for the loan?

The lender will take a secured position in all your firm’s assets including case revenue and expense reimbursements and will file a UCC-1 to secure the lien priority.

What happens if I lose a case?

Since all your cases are pledged as collateral, losing a single case should not have a significant impact on the lending relationship or your ability to repay the loan from the proceeds of your other cases.

What about confidentiality?

All client and case information is handled with the utmost care and confidentiality.

Does the law firm funding lender get involved in my cases?

No. A lender will never get involved in nor interfere with your management of your cases. All decisions regarding your cases are up to you and your clients.

How do I apply?

Applying is simple. Just complete and submit the lender's application form and send it in with the required documents.

If I don’t need funding, why should I borrow?

Talk to your financial advisor, but funding your own firm and its cases with your own money may not be the best use of your funds nor provide the best returns. If interest is deductible, or if you can include interest and fees as case expenses and be reimbursed, or both, it may not make sense to fund your firm and its cases with your own money.

What is the impact on my firm during the application process and afterwards?

A law firm funding lender tries to be as unobtrusive as possible. If all the required documents are received, the process will be quick and easy. In most cases a site visit may be required.

What if my credit history is less than perfect?

Legal funding experts are familiar with the challenges faced by contingency fee based firms, and will try to do everything to structure a loan facility for applicants with less than perfect credit. In some situations an additional guarantor may be required to secure financing.

How is a law firm financing lender different from traditional lenders?

Unlike a traditional lender or bank, law firm financing lenders are litigation funding specialists committed to meeting the unique needs of the highly specialized legal community. They understand the practice of law and tailor financing solutions based on the value of your most valuable asset, your cases and the uneven cash flow they provide.

How much does it cost?

If structured properly, the net cost to you may be zero. Your firm may get reimbursed from your cases for 100% of the cost of your loan fees and interest on the cases that you win.

A law firm financing lender may charge an initial commitment fee as well as a facility fee at the time of closing. These fees cover our underwriting and other out of pocket costs. The amount of the fees will depend on the size and complexity the loan and collateral. The monthly fee will depend on the loan amount, the credit history of the partners and the complexity and status of the firm’s cases.
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Last updated on May-31-12