In this blog, we highlight why it’s crucial for contingency fee law firms to choose the right bank, one that truly understands their unique business model.

Choosing the Right Bank: Banking Solutions Aren’t One-Size-Fits-All for Contingency Fee Law Firms

For many business owners, their banking relationship is one of the most lasting partnerships. Changing banks is often seen as an onerous task that no one wants to tackle unless forced. When it comes to banking for contingency fee law firms, owners and managing partners tend to share this same view. Choose a bank: stick with it through thick and thin, never reevaluating if that initial choice still makes sense for the firm’s business needs today.

Although this may work for the mom-and-pop corner store, it is a grave mistake for contingency fee law firms. This approach can lead to missed opportunities and inadequate financial support because traditional banks often lack the specialized knowledge required to truly understand the complexities of a contingency fee law firm’s financial structure.

The contingency fee business model is unique, which means valuing a contingency fee law firm is a unique process that not many underwriting teams have the expertise to do. At traditional, institutional commercial banks — where most law firms have a deposit relationship — contingency fee law firms are lumped into the same business category as the corner store. This means that when a law firm goes to their banker for financing, they will be asked to prove their ability to pay back the financing by sharing the firm’s P&L for the last three to five years.

This traditional bank method of evaluation fails to account for the unique revenue streams, case lifecycle, and future value inherent to contingency fee law firms. Without the expertise to assess these factors accurately, traditional banks may not offer the level of financial support needed to sustain or grow a law firm effectively.

How to Accurately Value Your Contingent Case Inventory

For contingency fee law firms, the value of their future earnings can be gleaned through their current case inventory through estimated case resolution timelines and the fees the firm will earn associated with those cases. [Read “Contingency Fee Law Firm Valuation: What Factors Matter for Financing?” for more details about how to value your contingent case inventory.]

Equally important is the law firm’s past track record of successes as well as the founder’s plans for growth. [Read “How Do Law Firms Show a Strong Contingent Case Pipeline?” for more details about how your contingency fee law firm can present a strong pipeline to lenders.]

Understanding the Limitations of Traditional Banks

Traditional bankers who work with a multitude of businesses and who have never worked in the legal industry do not have the expertise and understanding to evaluate a contingency law firm’s case inventory, nor can they accurately assess the firm’s track record or growth strategies. This limits the ability of traditional banks to offer financing options which will make a significant impact on the contingency fee law firm’s growth. Oftentimes, law firm owners will find that their bank can only offer them a fraction of the capital they need to achieve their growth goals.

“Our firm has settled $20 billion worth of cases, and we previously deposited all of these settlement proceeds at our prior bank. You would think that kind of business with a bank would carry forward year to year and buy you some love. Yet, we found the bank was less interested in our relationship, and the business side of our practice, and more interested in our individual and personal deposits.”

Noah Kushlefsky, Managing Partner, Kreindler & Kreindler

Esquire Bank: The Strategic Banking Partner to Leading Contingency Fee Law Firms

Choosing the right bank, especially one founded by trial lawyers, like Esquire Bank, not only mitigates this problem but also provides a multitude of other advantages. One of the most significant benefits to partnering with Esquire Bank is the ability to take advantage of the bank’s experience supporting award-winning law firms nationwide to achieve and exceed their growth goals year-on-year. Esquire Bank is staffed by lawyers who understand the unique challenges of the contingency fee business model and how to sustainably grow a contingency fee business. This is reflected in how Esquire Bank structures financing terms as well as its day-to-day interactions with law firm owners.

“Esquire Bank has skilled lawyers who came in to see us, and they asked the right questions. They understood what the issues were in the cases and got right down to what they thought the parameters of our case inventory value were. It was a conversation, and not a confrontation.”

Martin Edelman, co-founder Edelman & Edelman.

Partnering with Esquire Bank can make all the difference in a contingency fee law firm’s ability to access growth capital to invest in key business areas and  accelerate sustainable law firm growth. Read the complete case study of TorkLaw and BD&J to see how these contingency fee law firms allied with Esquire Bank and gained access to capital that fueled exponential growth and success.