Financial planning is a big part of any business’ strategy, especially in today’s rapidly evolving, highly competitive atmosphere. For most companies, staying competitive - and successful - means having access to the funds necessary for expansion into new markets, for offering new services or products, and for essential capital improvements that can support future development and growth. For most businesses, that means qualifying for bank loans that can provide the cash necessary for robust and responsible planning.
For typical businesses with more or less traditional “pay-upfront” services and products, qualifying for a bank loan means showing that your current assets and ongoing cash flow is sufficient, stable, and predictable enough to support monthly loan payments - and then some. Today’s banks want to see that their clients have adequate liquid collateral to make up for any lapse in payments - specifically, to cover the costs of a possible default. That’s where it gets especially difficult for law firms, many of which work on a contingency-fee basis, focusing on future revenue projections as the basis of their collateral.
Banks and Law Firms: The Not-So-Perfect Match
For many law firms, finding adequate funding for growth and expansion is problematic. Rather than surging forward or taking advantage of emerging trends and opportunities as they arise, law firms must play a waiting game. Holding back on growth opportunities until cases are finished and contingency fees come through, or until other fees and settlements are paid out. This is especially difficult for small- to medium-sized firms that don’t have “deep pockets” of reserve funds, major clients with substantial retainer fees or newer firms that have not yet established long and successful histories.
Although banks may like to tout their commercial products and services as catering to just about any business, regardless of industry or size, in practice that’s just not the case. Many firms find themselves in a quandary. They can see lots of opportunities to help them grow, but their financial structuring makes it difficult - and often impossible - to take advantage of those opportunities. Which means they’re unable to grow and sometimes unable to remain competitive.
Why is bank funding so elusive? It’s not that banks dislike law firms. The real problem is that banks simply aren’t set up to handle loans for businesses where a large part of the collateral and earnings are dependent on future expectations, no matter how “definitive” and dependable those expectations may be. In brief, there are two significant shortcomings for banks when it comes to lending for law firms:
1. Banks like clients with regular, predictable cash flow.
More specifically, banks want to see proof that their loan clients will be able to pay back their loans on a regular basis. The yardstick they use: Physical proof of regular, predictable cash flow, month in and month out. For most law firms that depend on future settlements and contingency fees, that’s simply not how cash flow occurs.
2. Banks don’t view your contingent fees as assets.
One of the ironies of bank lending is that traditional banks prefer to lend to clients who can show they don’t need the loan. OK, it’s not quite that simple, but banks do like to lend to clients who have enough quantifiable collateral to cover the costs of a default - and your contingent fees just won’t cut it. You may know those fees are coming - and you may even have an excellent idea of how quickly they’ll be received - but that means nothing to a traditional lender. They’re just not set up to measure, quantify and “count” contingency fees as viable assets when it comes to lending.
Of course, there may be other reasons why your firm won’t qualify for a loan with a specific bank. Today, many banks operate virtually - sometimes entirely online, with no physical location in your town or city. Other banks are large, with an international reach and little connection to the community you serve. As a result, they tend to view loan applicants with an eye toward investor profits rather than community-building and supporting local and small businesses. Instead of being viewed and evaluated within the local economic and demographic environment where the advantages of such lending may be obvious, many small businesses today find themselves competing on a regional, national or even international scale, where identifying and understanding the advantages of a loan can be much more difficult.
The Solution: Funding Tailored to Law Firms
Alliance Legal Solutions was founded to provide law firms with real, actionable financial solutions designed to help firms grow their practices and build on their successes. Instead of basing financing agreements on existing collateral, loan decisions are based on fees that are earned but not yet collected or on anticipated fees rather than on day-to-day cash flow - an ideal match for most firms today.
As a lending company that focuses solely on law firm funding, Alliance Legal Solutions understands the unique financing and cash flow structure typical to most law firms. That means their lending experts can accurately and confidently assess a firm’s value based on anticipated receivables and other revenue. Plus, Alliance Legal Solutions tailors repayment schedules to suit a firm’s anticipated cash flow to prevent shortfalls that can set a firm back.
Is your firm poised for growth? Don’t let traditional bank lending restrictions hold you back. Alliance Legal Solutions can help your firm realize its real potential.
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