Importance of Law Firm Financing

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Law firm financing can be some of the best capital available for law firms. The interest rates are higher than bank loans and you often don’t have to pay as much in collateral, or whatever your lender wants. This can equate to tens of thousands of dollars in money that’s just sitting there not earning anything. In today’s economy, you’ve got to take advantage of any opportunities like this but it is important that you turn your head towards Legal Consulting before taking any action. Legal Consulting Pro makes sure you take the right steps towards success.

Benefits of Financing Your Law Firm

The following benefits of securing financing for your law firm will help explain why many attorneys find getting a loan to be an attractive option when they are looking for capital to grow their business. We at Legal Consulting Pro take the right steps to ensure you get these benefits through our top-notch Legal Consulting service.

Cash Flow Management: When you choose to work with a bank, they often allow small businesses to spread loan payments out over an extended period so that payment dates coincide with expected billing periods (e.g., monthly, or quarterly) for most clients. By spreading out loan payments and billing periods, you limit your office to making one big payment per month which minimizes the cash flow problems many small practices often experience.

There are two reasons why this is beneficial to law firms – First, it cuts down on administrative hassles associated with invoicing multiple clients in a single day as well as reduces the chances of overextending yourself financially during lean months or when unexpected financial burdens arise (e.g., faulty computers). If your practice experiences erratic cash flows due to unpaid client fees, bank financing can be used to prepay bills or pay off high-interest-rate credit cards without sacrificing net profits.

Low-Interest Rate Financing Options: When you borrow money from a bank, they usually offer the lowest interest loans on the market as well as favorable repayment terms. Although your business may not be considered creditworthy by other financial institutions, banks are still willing to lend up to $1 million at standard interest rates which makes it easier for firms with low-profit margins to grow quickly (e.g., purchase additional office space or hire one less attorney) without sacrificing net profits significantly.

Since small firms are viewed differently than larger ones, bank managers often loosen lending requirements since small businesses act more like individuals when making purchases – meaning that most will not miss payments if something goes wrong. Hence, we highly recommend you go through some Legal Consulting beforehand. Because banks encourage healthy growth within small businesses, they often offer lower interest charges or more flexible repayment schedules.

Strong Collateral Options for Law Firms: Most law firm owners have adequate collateral to secure a loan with most financial institutions since their offices have been paid off or they own valuable pieces of real estate throughout the country. With $400K worth of real estate equity, Bob would most likely have no problem securing a bank loan or line of credit from his local banking chain. This is great for Bob because he can borrow as much capital as he needs without worrying about being declined due to a lack of collateral.

Effective Tax Management Options for Law Firms: For many professional organizations (e.g., law firms), using bank loans is more tax-efficient than traditional financing options. Because interest rates are typically no greater than 12% per annum, most banks calculate your taxable earnings using a blended rate based on both your original principal and your interest charges (e.g., $100,000 principle + 18% interest = $108,000 taxable earnings).

This means that rather than paying taxes on the amount you originally borrowed ($100K), you will only be responsible for federal and state taxes on $8,000 per year in income (i.e., why tax payments are generally lower when borrowing from banks). Since bank loans offer lower rates as well as favorable repayment terms, many law firms benefit by choosing this form of capital over others.

Peace of Mind for Law Firms: Another advantage that small businesses gain by choosing bank financing over other options is the peace of mind and stress-free environment offered by many banks. Because these organizations understand that your success means ensuring that you stay in business, they typically do everything they can to ensure that you will thrive rather than fail – something which you might not receive with other types of financing options.

Options for Financing Your Law Firm

Following are the several options for financing your law firm you can find the right choice for you with a legal consulting session by Legal Consulting Pro.

Cash on Hand – The use of personal finances to support your law firm includes saving money, investing in retirement accounts, and taking out home equity loans.

Financing Based on Revenue – In exchange for capital, firms pledge a percentage of their future revenues through revenue-based financing. An investor receives a percentage of earned revenue until a part of the investment is repaid by the law firm.

Access to Credit Lines – A law firm can use an unsecured line of credit to cover business expenses just like a small business loan. As opposed to large business loans, small business loans require law firms to put a lump sum of money into the account. A small business loan account needs to be repaid monthly by law firms. Firms do not necessarily need to make monthly payments with lines of credit.

Obtaining Loans for Law Firms – A new business may not qualify for business financing. In the absence of a business credit history and assets as collateral, there may be other options. You can also borrow money from a bank for a personal loan in addition to taking out a business loan. A law firm owner can also ask friends and family, but this isn’t a feasible option for most.

Identify Your Short- and Long-Term Financial Goals

To forecast key financial aspects of your law firm, a business plan is essential. You can also gain insight into your expected cash flow by creating a comprehensive law firm business plan with the help of Legal Consulting. You may also include information about your company’s financial health in your business plan. Your law firm financing framework will be more successful if you have objective and accurate information in it and Legal Consulting can help you with that.

A Firm’s Financing is Vital to its Expansion

To determine which options are available to you, you need to investigate all of your options. Making the right financial decision for you, your firm and your clients takes time. Getting your law firm up and running will be easier if you use this guide to start your law firm.  Discuss your financing options with Legal Consulting professionals and familiarize yourself with the different options outlined above. It is also a good idea to find a mentor who has been successful in starting their firm.

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