Understanding Law Firm Funding Options: Contingency Fee Law Firms
In this blog we discuss the typical law firm funding options and why case cost financing offers the best solution for contingency fee law firms.
Contingency fee law firms face unique challenges when it comes to financing their growth. Although they have the potential to earn large fees, they may have to wait months or even years to receive those fees. This can make it difficult to cover the upfront costs of litigation — expert witness fees, filing fees, and travel expenses — and the overhead costs of operation — rent, payroll, and technology.
There are a few funding options available to contingency fee law firms, including:
- Self-Funding: This is the most common option, but it can be limiting for firms that are growing or that have a large number of cases pending.
- Litigation Finance Companies: Litigation finance companies provide funding to law firms in exchange for a share of the eventual fee award, usually resulting in a higher interest rate than what traditional banks offer.
- Traditional Bank Loans: Traditional banks generally offer loans at lower interest rates than litigation finance companies. However, traditional banks can be hesitant to lend to contingency fee law firms because they do not have a guaranteed stream of revenue.
- Specialized Bank Loans: Banks, such as Esquire Bank, specialize in lending to contingency fee law firms. They can typically offer loans at the same or lower interest rates than traditional banks. In addition, they offer expertise in managing the contingency fee business model for sustainable growth and are invaluable financial partners for growing law firms.
There are two main types of financing available to contingency fee law firms, including:
- Case Cost Line of Credit: A case cost line of credit is specifically designed for contingency fee law firms. It allows law firms to borrow money to cover the upfront costs of litigation, such as expert witness fees, filing fees, and travel expenses. The loan is repaid out of the eventual fee award. They can help firms to avoid having to self-fund their cases, which can free up their capital to invest in other areas of the firm.
- Working Capital Line of Credit: A working capital line of credit can be used to cover the general operating expenses of a law firm, such as payroll, rent, and marketing costs. It can also be used to finance the growth of the firm, such as hiring new attorneys or opening new offices. They can be a good option for firms that need to smooth out their cash flow or that are looking to expand their practice.
The best funding option for your contingency fee law firm will depend on a few factors, including your financial situation, your growth goals, and the types of cases you handle.
Meet with Esquire Bank
Learn more about contingency fee law firm valuation and how your law firm can leverage case cost financing to free up capital that can be invested in marketing, technology, talent, operations, case acquisition, and scaling law firm growth. Schedule a no-obligation consultation with an Esquire Bank Business Development Officer today at a time convenient to your schedule.
Looking to Learn More About Law Firm Growth Strategies?
Download the eBook now, “5 Bold Strategies to Grow Your Contingency Fee Law Firm,” to get your hands on our top strategies for achieving exponential growth.
The information provided in this blog is provided for general informational purposes only. Some of the information may not be applicable or appropriate for all law firms.
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