Article Summary:

• There are unique financing options and loans for lawyers in California to launch or grow a practice.
• The Small Business Administration, banks, online and alternative lenders provide different types of law firm financing.
• Interest rates and terms depend on the product and can affect monthly and total costs.

Starting your own law practice in California could cost you thousands of dollars. You can try to bootstrap, but depending on your location, goals, and type of practice it can be quite costly. If you want to grow your law firm, that’s another investment. Whether you’re just starting out or a seasoned veteran, you might not have the capital to make your dreams a reality. There are various loans for lawyers in California to get you started.

Types of Loans for Lawyers in California

1. Term Loans

Term loans for lawyers in California offer a specific loan amount that is paid back in installments for a set repayment term. The funds can help with startup costs and go toward equipment, which typically serves as a form of collateral for the loan. You’ll get the funds upfront, and your monthly payments are easier to budget for with a set schedule.

2. SBA Loans

The Small Business Administration (SBA) provides funding options of up to $5.5 million to support small businesses. The SBA makes it easier to qualify for a loan through one of its lending partners, as the entity backs the loan. SBA Loans include:

• 7(a) loans
• 504 loans
• Microloans

The 7(a) and 504 loans offer long-term financing for a range of purposes, including purchasing equipment or getting a building like an office space. If you need a relatively small amount, SBA microloans are available for up to $50,000 though the average loan amount is $13,000.

Bank Loans

If you need law firm funding in California, bank loans may be available. You must meet their underwriting criteria to qualify, and the process may take a while. If you have a business bank account set up with a financial institution, inquire about their lending options.

Options for Law Firm Financing in California

Aside from the loans for lawyers listed above, there are other types of financing to look into as well.

1. Business Line of Credit

One of the most flexible options for law firm financing in California is a business line of credit. A bank may extend a line of credit that you can use up to a certain amount. However, you can use just what you need.

So, if you get a $20,000 line of credit but only need $10,000 then you’ll pay interest on what you use. This tool allows you to shuffle between repayment and borrowing, as you can access more available credit as you repay what you borrow.

2. Case Cost Financing

There is a special type of law firm financing in California called case cost financing. Lenders offer contingent-fee law firms funding in the form of a line of credit. This can be used to help pay for the cost of the case, as the name suggests. This could be used to pay for medical record costs or access to experts that can help you have a positive outcome and win your case.

The idea is that you pay interest now and pay the outstanding balance later after winning the case. On the other hand, if things don’t go your way and you lose, expect to pay back the balance with interest. However, that may not be the case with all lenders.

3. Litigation Funding

Litigation funding or lawsuit funding is generally what’s referred to as non-recourse financing. In this arrangement, the settlement acts as collateral. So if you win, the litigation funder is entitled to a portion of the funds and typically gets paid first, according to the American Bar Association (ABA).

In the event you lose and there is no settlement, you’re not responsible for repayment. Because this financing is non-recourse and you won’t owe anything if you lose, you end up with much higher interest rates to counteract the risk.

Helpful resources: Just like law firms might need financing, your clients might as well. A platform like LawPay can help your cash flow and help your clients. The way it works is that you receive the invoice amount upfront, while your clients can make installments to pay their share. Other software like MyCase can help you streamline your cases and billing, freeing up more time.

What to Consider Before Taking Out Law Firm Loans in California

Taking out law firm loans in California to help cover costs can help your cash flow and give you upfront capital. That way you can focus on providing your legal services and doing what you do best. However, you want to compare different factors before choosing a lender. Before taking out any law firm funding in California, consider the following:

• Loan amounts: Don’t borrow more than you can handle or more than what you really need. When comparing loans for lawyers in California, look at each lender’s minimum and maximum loan amount.
• Eligibility requirements: Off the bat, you might not qualify for all the types of financing available. Check your eligibility first.
• Credit score: Lenders will look at your credit history and review your credit scores, both personal and business, if applicable. An excellent credit score may help you get approved for lower interest rates.
• Interest rates: When you take out a loan, you’ll pay interest on the total amount you borrow. The interest rates make a significant difference in how much you pay, so it’s crucial to compare rates.
• Monthly payments: Evaluate your financial situation, both personally and professionally. Assess how your monthly loan payments will affect cash flow.
• Repayment terms: The loan term dictates how long you’ll have to repay your loan. It also impacts how much interest you’ll pay over time and the size of your monthly payments.
• Loan application process: Look at what’s required from each lender to apply for law firm financing in California. Review how quickly you can get approved and receive the funds. This matters if you need funds right away.

Final Thoughts

Whether you’re deciding to launch your own law firm or simply need additional support for your existing law practice, you have numerous options if you’re looking for law firm funding in California. There are special loans for lawyers in California and lines of credit you can access to get the financial support you need. As a lawyer, you’re used to reading things over with a fine-tooth comb. Take that same focus when applying for financing so you know what you’re getting into.

FAQs about Law Firm Financing in California

How Are Law Firms Funded?

Law firms in California are typically funded through a mix of savings, small business loans, and other types of credit. How much money it takes to fund a law firm depends on your total startup costs and current assets.

How Do Small Law Firms Make Money?

Small law firms can leverage their expertise and offer their legal services to make money. The amount you’ll make will depend on your hourly rate, billing cycle, and how many clients you have on retainer.

What Is the Easiest SBA Loan to Get Approved For?

Out of the various SBA loans available, microloans may be the easiest to get approved for as the maximum loan amount is $50,000. These small loans can go toward working capital, equipment, and supplies. However, eligibility will depend on multiple factors and rates and terms vary by applicant.

What Are the Best Loans for Lawyers in California?

The best loans for lawyers in California have competitive interest rates and manageable monthly payments and repayment terms. Lenders may include the Small Business Administration, a bank, or an online lender.

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