Starting up your own law firm, then running that firm successfully each year, can be a costly endeavor as a small business owner. Regardless of your legal firm’s scope of practice, the right financial management can help support your firm’s growth, encourage healthy cash flow, and ensure operational efficiency for you, your associates, and your clients.

There are various loans and financing options available to attorneys across the country, no matter where you operate. Here’s a specific look at law firm loans in Texas and how to choose the right funding option for your business.

Why Law Firms in Texas May Need Financing

Texas law firm loans can help meet many different financial needs, whether you’re trying to fund and start a new business, expand your company, or keep an existing firm afloat. Depending on the type of financing you choose a law firm loan in Texas can serve to:

• Meet cash flow needs, either due to seasonal revenue fluctuations or delayed payments from clients.
• Expand the business with additional staff, new offices, marketing, advertising, upgraded technology, and more.
• Fund costly cases, especially those taken on a contingency basis.
• Maintain financial stability and help bridge the gap between outgoing operational costs and expected client payments.

Types of Financing for Law Firms in Texas

Depending on how much you need to borrow, what you can afford, and how you plan to use the money, there are many different types of legal loans in Texas. Here are a few of the most common.

Traditional Bank Loans

Standard bank loans may be one of the most common types of law firm financing in Texas and beyond. These term loans are offered by banks, credit unions, and other lenders and allow you to take out a single lump sum that you’ll repay in monthly payments over a specific period .

Traditional bank loans can have a fixed or variable interest rate, which will be determined by factors such as your business credit score and history. These loans tend to have lower interest rates than other forms of debt, such as a revolving line of credit and also offer longer repayment terms in many cases. Some Texas banks may even offer term business loans specifically for business expansion or acquisition, like buying an existing law practice.

Line of Credit

A business line of credit gives law firms flexible access to funds that they can tap as needed. Similar to a credit card, this line of credit allows you to borrow as much or as little as you want at any given time, up to your predetermined limit. You’ll then repay what you borrowed and only pay interest on that amount.

These lines of credit help businesses manage short-term working capital needs, like providing cash for an unexpected opportunity or keeping things afloat amid late client payments. They also act as a safety net for emergency expenses, since you can tap the funds almost immediately once the line of credit is open.

Interest rates can often be higher on lines of credit than installment loans; even though you won’t pay interest on cash you don’t use, you may pay more when you do borrow compared to a term loan.

SBA Loans

Some small business loans offered by banks and other lenders are backed by the Small Business Administration (SBA). These loan programs offer small and large financing options whether you’re starting a new business or expanding one you already own.

SBA loans for law firms in Texas can provide funding from a few thousand dollars to multiple millions, depending on your needs and the program you choose. Eligibility requirements can be more stringent than standard business loans and the application process is notoriously lengthy. Once approved, though, interest rates can be very competitive, depending on how you plan to use the funds.

Law Firm Specific Lenders

A handful of lenders specialize in law firm funding in Texas and beyond. These lenders understand the day-to-day needs of attorneys and offer a variety of financing options to fund new law firms, provide working capital to existing firms, and help lawyers expand their legal practice or acquire another firm.

These law firm-specific lenders understand the complexities facing legal professionals and offer curated borrowing products such as case cost financing and installment loans for class action or mass tort firms. They can work with law firms to not only determine each attorney’s needs but also find unconventional options for collateral to secure those loans.

Merchant Cash Advances (MCAs)

A merchant cash advance (MCA) is an alternative funding option that’s based on expected future revenue. If you accept payments by credit card through a merchant account, you may be able to borrow against receivable funds that the creditor already expects you to earn in the coming months.

This funding option usually comes with higher fees and a shorter repayment period. You also need to keep in mind that since you’re borrowing from your future self, that’s revenue you won’t receive down the line. However, if you need quick funding with flexible terms and easier underwriting requirements, MCAs can be an option to consider.

Private Equity & Venture Capital

Depending on your practice areas and the specifics of your firm, you may be able to fund your firm’s expansion, restructuring, or even a big project with the help of private equity partnerships. These are best geared toward already successful firms planning major business transformations, as these partners will be sure to do their due diligence before offering capital.

Private equity and venture capital funding is usually offered in exchange for a share of equity, or ownership, in your business. Remember that while this saves you the worry of monthly payments and interest, you’re essentially selling off a portion of your business.

Key Considerations When Shopping for Law Firm Financing

Whether you’re looking to borrow $50,000 to start a new law firm or $2 million to provide your firm with cash flow while you take on a massive class action lawsuit, there are a few things you’ll want to keep in mind as you shop.

Interest Rates and Repayment Terms

There are both short- and long-term financing solutions to consider, depending on your needs and budget. A short repayment term means a larger monthly payment, though a longer repayment term will often mean a higher interest rate and greater overall cost. Fixed interest rates may be higher initially, but will remain constant throughout your repayment and don’t run the risk of increasing over time.

It’s important to assess your monthly payment amount, annual interest rate, and the total cost of your law firm loan in Texas when comparing options. 

Eligibility Criteria

To minimize risk, lenders will look at your business credit score, current and past revenue, and business history when evaluating your loan application. When using a law firm loan in Texas to buy real estate, equipment, or other assets, you could have better luck with a secured loan that uses that new asset as collateral.

If you’re a new lawyer, you may find it more difficult to take out a law firm loan without any established business credit. Lenders might instead choose to underwrite your loan based on your personal credit score and business plans.

Amount of Funding Needed

The right law firm loan for you depends largely on how much you need to borrow. If you only need $10,000 to manage cash flow through a slow season, for example, a term loan or merchant cash advance could be the best and fastest option.

If you want access to a large amount of cash at any given time — which could be used to cover cash flow gaps or fund unexpected purchases — a business line of credit could be the safety net you need. And if you are looking to borrow substantial funds to acquire another firm, market a massive class action lawsuit, or hire exceptional talent, an SBA loan or private equity funding option might be best.

Speed of Funding

Some business funding options may be able to put cash in your hand within a few days, if not sooner. Others might have a lengthy underwriting process that takes weeks or months to finalize and fund.

If you need cash for an emergency expense, you probably don’t have time to wait for an SBA loan, even if that would mean a lower interest rate. Instead, tapping into an existing business line of credit or getting approval for a term business loan through an online lender might be your fastest bet.

The right law firm funding for you depends on the time-sensitive nature of your financial needs and how long you can afford to wait.

How to Shop for a Texas Law Firm Loan

If you think that a law loan, line of credit, or other financing option is the right next step for your firm, there are a few things you can do to make the process go smoother.

Gather Financial Documentation

Each lender will have its own requirements and expectations when applying for financing. Having some documents on-hand can speed up this process and ensure that you get cash in-hand even sooner.

You may need a combination of your:

• Past financial statements
• Current bank statements
• Previous tax returns
• Profit & loss statement
• Business plan

Choose the Right Lender

Spend some time comparing not only your financing options, but also the different lenders and available terms. Look at everything from eligibility requirements to repayment term options, interest rates, and even funding time. This will help you narrow down the best fit for you, your budget, and your financial needs.

Begin Applying

You may be able to apply online for your law firm loan in Texas, though some financial institutions will want you to start the process over the phone or even in person. You may also need to upload documentation. Depending on your situation and the loan and lender you choose, the application process could take anywhere from a few minutes online to multiple weeks of back-and-forth.

Once your law firm loan is approved, funds will be sent directly to you via check or even a transfer into your preferred bank account.

Final Thoughts

As with any small business, law firms often require financing to help establish, grow, or even just maintain their business and meet financial needs. There are many different law firm loans in Texas to choose from, including term loans, lines of credit, SBA loans, and venture capital financing. The right one for you depends on how much you need to borrow, when you need the cash, your business’s history, and what you can afford to spend.

FAQs about Law Firm Loans in Texas

Can I take out loans for attorney fees in Texas?

Yes, you can take out a personal loan to cover attorney fees in Texas. Some law firms even partner with specialty lenders that give cash directly to the firm while the client borrower repays the debt according to an agreed schedule. This type of loan allows both parties to stay on schedule without waiting for funding from another source.

Can I get a loan as a lawyer for a small business in Texas?

Small business loans are available to law firms and attorneys in a wide range of specialties. Whether you’re trying to manage cash flow while waiting on contingency fees from a big personal injury settlement or hoping to acquire an existing firm and grow your own business, lawyer loans and lines of credit can help you get there.

What’s the best type of loan for law firms?

Finding the right law firm loan in Texas means looking at how much you need to borrow, how you want to use the money, how soon you expect funding, and what you can afford to repay each month. A business line of credit may take a while to approve initially, but gives you access to immediate cash for emergencies or opportunities in the future. A term loan can often be approved and funded in days (if not sooner) but doesn’t allow for future repeat borrowing without taking on another loan.

How do I find the best law firms near me?

If you’re looking for an attorney in your area, start by asking trusted friends and family to get personal recommendations. You can also read others’ reviews on sites like Yelp, Google, and AVVO. Keep in mind that each law firm will have its own specialties, too: no matter how good they are, a financial services lawyer probably isn’t your best fit if you need a criminal defense attorney.

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