A Guide To Law Firm Funding Or Attorney Loans
Did you know that, according to IBIS World, there are over 400,000 law firm businesses in the US? This number is
up 0.6% from 2020, and the annualized business growth of law firms in the US was 0.4% between 2016 and 2021.
If you run one of these many law firms, you might have found recently that you aren’t in the best financial situation. This is stressful, especially considering the current challenges that many law firms are currently facing.
Fortunately, law firm funding loans can help you regain your financial standing. But how do they work?
In this guide, we’ll cover everything you need to know about law firm funding. Finally, you can get the money you need and you can run your law firm successfully without having to worry about money. Read on to learn more.
What Is Legal Funding?
Legal funding is a solution that was created by experts in the law so that the contingency fees of plaintiffs and attorneys could be taken care of more easily. This solution eases the cash flow problems that many law firms finding themselves facing (like paying for expert witnesses) when operating normally.
Basically, plaintiffs and attorneys receive the funding they need with the expectation that they’ll be able to pay back the loan once they get future receivables.
Until plaintiffs receive the money, they don’t have the capital they need just yet and are in a situation that is emotionally or physically traumatizing (or both).
Until Law Firms or attorneys receive the money, they don’t have the capital they need to push their business forward but will be able to pay off the loan once they have won or settled some of their cases
Other names for law firm funding include “legal funding,” “settlement loans,” “lawsuit loans,” “lawsuit lending,” and “litigation lending”
How Do Law Firm Loans Work?
If you decide to apply for a loan, the legal funding company, which is a third-party company, will provide you with money with the hope that you’ll win the case. You would have an expected amount you’d get when you win the case.
After you win, you would pay back the loan with a certain percentage of your winnings—usually around 30% or 40%.
However, if the case or cases all fail, the third-party company doesn’t receive money back from the law firm. They lose the money that they invested in the business – This is referred to as a Non Recourse Loan.
The Difference Between Law Firm Funding and Loans
Something important to note is that law firm loans are different from loans. When you get a loan, you have to pay upfront fees, and you also have to deal with points and monthly funding. This is very different from a law firm loan.
There are typically some fees when you get a law firm loan, usually to cover underwriting costs. However, even with these fees, you aren’t expected to pay them back until cases are won or settled...
Why Law Firm Loans Make Sense
Even though lines of credit and bank loans are less expensive and more common as funding options, going to a bank for a loan might not actually be the best choice for the owner of a law firm. This is for several reasons.
First of all, when you’re applying for a LOC or loan, the lender will require you to present your non-liquid assets. For example, real estate, stocks, or bonds.
These assets as used as collateral, which means that they demonstrate that the person or business that has taken out the loan can pay the loan back.
Many law firm owners might not necessarily have this type of collateral. Chances are, they’ve spent much of their money investing in future cases or paying for their law office rent.
Another problem that comes up when applying for a traditional loan is the need for a high credit score to be accepted for the loan (or to have a reasonable interest rate).
As a law firm owner, your credit score might not be high because of work-related expenditures.
Additionally, paying the monthly payments may not just be possible for you, as you need to have a successful case to make the money for paying back the loan.
You may not have this money yet, even though you know you will in the future. For this reason, the best loans for you can be la aw firm loan.
The Steps in Getting A Law Firm Loan
If you’re considering getting a law firm loan, there are several steps you take. First, you’ll get in touch with the third-party lender about the amount of money you need to be lent. When this happens, they’ll purchase a percentage of your future legal winnings.
In terms of collateral, the third-party company will accept your law firm’s case inventories.
This is evidence that you’ve been successful enough in the past that you’re likely to win your case—which means you’ll theoretically be able to pay back the loan.
It’s important to note that they won’t do a credit history check.
You also won’t be personally responsible for the loan. When it’s paid back, the money will be taken directly from the obligor, administrative, or attorney escrow accounts.
The Role of Underwriters
When you get a law firm loan, there are underwriters on the team at the third-party company who will review your application, determine your eligibility, and customize the funding package you finally agree to with the third-party lender.
To do this, they first study the cases with which you’re planning to pay back the funding.
By taking a look at past, similar cases your law firm has handled before, they’ll get a good idea if you’re likely to win this case. Additionally, they’ll look at the details of the case itself to make this evaluation.
They’ll also determine how much funding they can give you when they would need the money back by, and the discount rate.
Once You’ve Been Approved
If the underwriters approve your law firm loan, they’ll purchase a portion of your future receivables. This will come from the obligor account. Once this happens, you’ll usually only have to wait 48 hours or less to get the money you need.
The third-party company never purchases what you expect to be the entire legal fee or settlement amount. This is to minimize risk on their end and to make sure that you’ll have some access to future funds.
Usually, the percentage amount they’ll purchase is between 10% and 50%.
Types of Legal Funding
There are several types of legal funding you can receive. These include pre-settlement funding, post-settlement funding, voucher funding, and line of credit. We’ll review each of these in detail now so you can decide which is best for you.
With pre-settlement funding, the settlement amount hasn’t been determined yet. You’ll pay a higher interest rate for the funding because it’s a higher risk for the legal funding company.
You can use this type of funding to pay for current expenses and the day-to-day running of your law firm.
With post-settlement funding, the settlement amount has already been reached. For this reason, the interest won’t be as high.
If you have public defenders in your law firm, then you can also be eligible for voucher funding. Because many public defenders have to wait a long time to receive their state-provided pay, this can be a helpful solution to them.
Voucher funding works a lot like post-settlement funding, with the legal funding lender purchasing part of the fee the public defender expects to receive.
Finally, there’s the line of credit option. However, these work slightly differently, as they aren’t advances. Instead, they work more like the lines of credit you’d get through a bank.
If you want to advance your practice, this is a great option, as you can access the capital you need as your law firm grows.
Need More Information?
Now that you’ve learned everything you need to know about law firm loans, you might need more information. Maybe you want to learn more about a specific type of legal funding loan. Or maybe you want to find a law firm provider near you.
Whatever information you need, we can help. At Lawsuit Loans 911, we’re experts when it comes to law firm loans. We also provide law firm loans and get them to you fast.
To learn more about how we can help you, Click here for detailed information Law Firm Or Attorney Funding Options.
Also Some related Information – 10 Things to KNOW TO GET A LAW FIRM LOAN How to Get LOANS for Attorneys and LAW FIRMS What is SIMPLE vs. COMPOUND INTEREST WHISTLEBLOWER / False Claims Act LOANS LOWEST RATE PRE SETTLEMENT LOANS- In 5 Steps