An Overview of Business Loans for Lawyers and Legal Practices

• For premises and office equipment

Creating the right impression is crucial for any legal practice. Business loans for lawyers can make it possible to rent, purchase or renovate your premises. Office equipment such as copiers, shredders and telephone systems are expensive but can be purchased if you have access to the right finance options.

• For staffing and professional development

Professional legal and support staff are the core of a legal practice. As you grow and win more clients, you will need to hire staff. You might also need to hire staff for new areas of specialisation. In addition, training and development of existing staff ensure that you keep skills up to date. It might not be possible to fund these with cash on hand, so a business loan can help make it happen.

• For marketing, branding, advertising and public relations

In a competitive environment, law firms need to get their name out to gain new clients. Gone are the days when advertising simply meant having an ad in the Yellow Pages. Marketing and advertising efforts can include SEO and pay-per-click advertising, social media, and content marketing. A carefully researched and planned marketing strategy can provide a substantial return on investment.

• For boosting cash flow

You might have times when you don’t have the working capital to cover expenses. For example, when you are waiting for an invoice to be paid after providing legal services a business loan can help improve your cash flow until your situation improves.  

A range of business loans for lawyers is available to meet your particular finance needs. Here’s an overview of some of them.

With a business overdraft, you run a negative balance on your business transaction account up to an agreed amount and only pay interest on the funds you are using. For example, if you have an overdraft with a $50,000 and are only using $25,000, you only pay interest on the $25,000. As your cash flow situation improves, you can lower the amount of the overdraft and go back to having a positive balance in your account. Business overdrafts are available in secured and unsecured versions. The interest rate on a business overdraft will be higher than for other types of business loans for lawyers, so it often used as a short-term finance solution.

A business line of credit is similar to a business overdraft by not automatically linked to a business transaction account. You get access to an agreed amount of funds and only pay interest on what you are using at a given time. Business lines of credit usually have higher minimum amounts and lower interest rates than business overdrafts. For these reasons, they are considered as a better long-term finance solution when compared to business overdrafts.

A bank term loan has been a mainstay of business lending. With a term loan you get a lump sum amount and then make regular payments over the term until the loan is paid back. The main shortcomings with this type of loan is that it requires a substantial amount of paperwork to be completed and it can take up to two months to get a response. In some cases, especially for a new business, the bank will want to see a business plan. Bank term loans are secured loans, so a residential or commercial property needs to be pledged as collateral for the loan.

Business credit cards can be useful for short-term finance needs. Most credit cards offer a grace period on interest for charges, so it can be a cost-effective tool. Business credit cards come with a range of features include points, rewards and travel insurance. The interest rates on credit cards tend to be high so it’s best to avoid keeping an ongoing balance on them. Read Tips for Choosing the Right Business Credit Card for more information about business credit cards.

Unsecured business loans have been growing in popularity with legal practices. In recent years, fintech lenders have developed technology that makes it easy to apply for this type of funding. With Moula, for example, you can complete the application in around 10 minutes. Instead of completing reams of paperwork, your finances are safely and securely analysed online to determine your eligibility.  Learn more about unsecured business loans from Moula. 

Before applying for a loan for your legal practice, you will want to check your credit history and credit score (learn more about this from What is a Credit Score and How Does It Affect You and Your Business). For other types of loans, such as a bank term loan, you will need at least two years of financial statements.

For a comprehensive guide to business lending, see The Complete Guide to Business Loans.

Often, law firms seek business finance because they have a large amount of receivables outstanding. Research has shown that legal practices in Australia with under $5 million in revenue have an average debtor days of 51. In addition, the average work in progress for these legal practices is 68. So the total lock-up (work in progress plus debtor days) is 119. So it’s not surprising that cash flow is one of the top 5 challenges for law firms (Australian Legal Industry Financial Performance Survey, 2020).

One solution that can help reduce debtor days is Moula Pay. When your clients pay with Moula Pay, you get paid upfront. At the same time, clients get up to three months interest and repayment-free with the option to extend the repayment period.

When you become a Merchant with Moula Pay, you can:

• Get paid upfront – give your customers excellent payment terms that improve your cash flow.
• Stop chasing payments – outsource the pain of chasing invoices, and let Moula take the risk of unpaid invoices.
• Sell more, more often  – giving your customers access to more funds means they can spend more with you.

Learn more about how Moula Pay can give your legal services clients great payment terms and improve your cash flow.