Whether you’re looking to start your own firm, shore up your existing practice’s cash flow, or fuel your growth, law firms of all sizes and specialties can benefit from an infusion of working capital.

Attorneys and law practices face a number of unique challenges, including:

• Office space: Law firms, whether they’re a solo practice, a boutique firm, or a large full-service firm, need to present a professional, credible image, which means they need an attractive and well-furnished office space with reliable technology and a comprehensive library of law resources. This infrastructure can be costly, and prioritizing these purchases can be a difficult financial decision for new or smaller practices.
• Billing models: Courtroom trials and other cases can be expensive and time consuming, and may take years to pay out depending on whether you use a retainer model, an hourly rate, contingency, or bill by installment. Litigation firms and transactional firms can both face additional financial challenges while a case is in progress, including cash flow limitations and lack of access to working capital.
• Marketing: Successful law practices need to do more than simply rely on referrals from past clients or other lawyers—they also need to take the time to identify their ideal client and create a marketing plan to reach their audience. Both offline and online marketing strategies are effective for law firms, but each require a financial investment to kickstart.
• Continuing education: Some jurisdictions require practicing lawyers to complete a certain number of continuing professional development hours every year to maintain and enhance their understanding of legal topics such as professional responsibility, ethics, practice management, procedural law topics, and other related skills.

Law firm funding can help practices of all sizes meet these challenges and continue to grow.

Long and short-term law firm funding options are available, including:

1. SBA business loans for law firms
2. Bank loans
3. Private equity funding
4. Alternative funding
5. Lines of credit
6. Lawsuit funding or litigation-based financing

Let’s take a closer look at these options.

SBA loans are technically provided by intermediaries such as banks, credit unions, non-profit organizations, or Commercial Development Companies (CDCs), but are guaranteed (usually up to 80%) by the Small Business Association (SBA) in the United States or Business Development Bank (BDC) in Canada.

These loans are often the preferred loan for many small businesses, including law firms. The risk to the lender is lower because they are guaranteed by the federal government, which means this type of funding often comes with lower rates and better terms for borrowers. However, the application process for SBA funding is much more rigorous than other forms of law firm funding, with extensive application forms that often require years of detailed business and personal financial information. It can take weeks or months to process your application and there’s no guarantee of approval. Most applicants are rejected, especially those with low credit or those seeking a short-term loan.

SBA loans are available for both start-up and existing law firms. Several SBA loan options are available, but there are typically two types of SBA loans that are ideal for law firms:

1. 7(a) Guaranteed Loans: With fewer restrictions on how funds are used, larger loan amounts, longer repayment terms, and lower interest rates, 7(a) loans are the most commonly sought SBA business loan for law firms. These loans typically require collateral and follow similar guidelines to standard term loans. Loans up to $5 million are available, and are ideal for helping businesses meet short- or long-term needs as well as for starting, expanding, or acquiring a business. This program also includes Express loans, which have a much shorter turnaround time—36 hours or less—and typically don’t require collateral for loans under $25,000.
2. 504 Local Development Company Program: 504 loans are long-term, fixed rate loans that are commonly used to acquire real estate or equipment such as computers or other technology. These loans are administered by CDCs through commercial lending institutions with the expectation that the borrowing business will create or retain jobs or uphold public policy goals such as supporting minority-owned businesses, revitalizing a business district, or rural development.

While they may not offer rates as low as SBA loans, bank loans offer competitive terms and rates depending on the size of the loan and your credit history. Banks and other commercial lenders have strict lending requirements, but the requirements are not as restrictive as SBA loans—for this reason, bank loans may be easier to acquire than SBA business loans for law firms, especially if you already have an existing relationship with a commercial lender. However, similar to SBA loans, it can take weeks to find out if your bank loan application has been approved and approval is never guaranteed.

The anticipated revenue for a law firm can make these businesses an attractive candidate for funding compared to businesses in other industries, but it can still be difficult for law firms to get the funding they need from banks and other commercial lending institutions. Because banks prefer to grant loans to large, established businesses or loans for larger amounts, it can be especially tough for smaller firms or firms looking for smaller loan amounts to get attorney funding from a bank.

With private equity funding, you sell shares in your company in exchange for immediate capital. Typically, a private equity firm will purchase stock in a law practice in order to profit off that firm’s future growth—that means you won’t owe money if your business fails, but if you succeed, you’ll split your profits with your investors.

Depending on your goals, private equity funding may not be a viable funding option for private law firms. However, because it provides a cost-effective, low interest method of financing larger amounts, it can be ideal for expanding a law firm.

Alternative funding from direct online lenders like Greenbox Capital is easier to acquire than SBA or bank loans for law firms, with flexible lending requirements as well as faster approvals—sometimes in as little as 24 hours. Multiple types of short- and long-term funding are available, including alternative small business loans, real estate collateral loans, and lines of credit, as well as non-loan forms of financing such as merchant cash advances, invoice factoring, typically with no limits on how you use your funding.

These lenders base your approval on the health of your business and are more lenient with credit records and financial documentation. They are also more likely to lend to newer businesses, though some will not lend to start-ups or businesses in operation for under 6 months. However, rates are higher than SBA or bank loans, often with daily or weekly repayment terms depending on the type of funding you’re seeking.

Business lines of credit are available from both banks and alternative lenders, typically for longer terms than short-term funding options like merchant cash advances. This type of attorney funding offers the most flexibility, allowing you to draw from and repay the line of credit whenever you need. You’ll only ever pay interest on the amount you borrow.

Lines of credit are ideal for accessing cash periodically, similar to a credit card but with better rates and higher limits (up to a specified maximum amount). This makes lines of credit a practical law firm funding option for responding to unexpected complications, purchasing new technology, or other major purchases that don’t require a larger loan but which can still strain your cash flow or require more working capital than you can easily access.

Lawsuit funding is a special kind of financing that is available only to law firms. With this type of financing, lenders will grant loans based on anticipated court case wins or settlements, typically for class action, medical malpractice, or other complex and expensive litigation—essentially, your lender will provide an advance on the funds you hope to win, and you’ll repay the loan based on the total amount you receive. Though it’s typically offered directly to clients, lawsuit funding is also available to firms.

Some lenders will require you to pay back the loan whether you win your case or not, while others will only charge interest if you don’t win so that you can make interest-only payments till you find another way to pay back the principle.

This type of funding typically features higher interest rates because the risk to the lender is greater due to the possibility of loss or recovering less than the amount advanced.