Lines of Credit – A Law Firm Necessity

by CherrellT on March 22, 2012

Every law firm’s operating funds are in a consistent flux.  Much of the time lawyers are put in the position of fronting monies to expert witnesses, advancing payments for personal injury cases and a myriad of other expenses – contrary to popular belief, legal firms aren’t rolling in riches.  With a cash flow largely dependent on the favorable outcomes of its cases, the legal profession is one industry primed to benefit from the advantages of lines of credit. 

Benefits of a Credit Line

Providing a consistent cash cushion certainly will allow you to focus on your law practice.  It can also finance the expenses necessary to develop your larger cases – improving your capability to meet client expectations during litigation. Keeping your financial risk to a minimum is an essential part of appropriate business management.  Here are a few reasons why a line of credit might be a good choice:

1.    Many banks will want you to take a secured loan against your building (if you own it), but a line of credit is a far more reliable route.  After all, you may want to leverage your fixed assets for future expansions instead of bogging them down for mere cash flow.

2.    A line of credit is a vehicle to use only as needed and you only pay interest on that use, unlike a regular collateral loan.

3.    It can provide “capital” for usual operating expenses so your cash flow isn’t reduced.  Keeping your own substantial cash in the bank gives you buying power and credit worthiness as well.

4.    Use your line of credit to bridge the gap while waiting for your contingency fees or cases to settle.

What Does It Take to Qualify?

First, you would need to be incorporated as a true, legal business in the state in which you operate.  Secondly, you would need to have an established bank account in your business name with an EIN or tax ID number.  Your personal credit score should be above 680.

You should also currently have a business credit card that reports to business reporting agencies – this would prevent your personal credit score taking a hit every time a lender pulls your credit for the purpose of the credit line or loan.  Be sure to make certain that those organizations with which you are building credit history are reporting to business credit bureaus; it can make a huge difference in the stability of your business credit worthiness.

Whether you have a private practice or you’re a partner in a larger firm, a line of credit can be a real boon to your footing in the competitive legal industry today.

Randy Sullivan is a loan consultant and content contributor for smallbusinessloans.com, a site offering assistance with both a Business Line of Credit as well as Business Credit Cards.

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