Law firms are financed on cash flow and receivables, not hard collateral. The most common needs are case-cost financing for contingency (PI) firms, working capital to cover payroll between settlements or billing cycles, and SBA 7(a) loans (~10–20% down) for partner buy-ins, buyouts, and practice acquisitions. A line of credit against AR/WIP handles recurring timing gaps; a term loan or SBA loan funds one-time investments like a lateral group, expansion, or buying a retiring attorney's book.
Law firms are a classic "no collateral, all cash flow" business: the value is the book, the billings, and — for contingency practices — the case inventory. That shapes everything about how they borrow. Whether you're a PI firm fronting litigation costs, a transactional shop smoothing billing cycles, or a partner buying in or out, here's how law firm financing works.
How Lenders Underwrite a Law Firm
With little equipment or real estate to pledge, lenders look at the firm's economics: billing and collection history, realization rates, partner compensation, accounts receivable and work-in-process (WIP), and client/matter concentration. Contingency firms add a layer — the quality and stage of the case inventory. The SBA 7(a) guarantee and AR/WIP support are what let lenders fund firms that a collateral-based bank loan wouldn't reach.
Case-Cost Financing for Contingency Firms
Personal-injury and other contingency firms front litigation costs — experts, depositions, medical records, filing fees — for months or years before a settlement pays. That mismatch between spending now and getting paid later is the #1 reason these firms borrow. A case-cost line of credit or working-capital facility lets a firm take on more cases without choking payroll. Lenders size it on settlement history and case-inventory quality; specialty litigation-finance lenders and bank lines both compete here.
Financing Options
| Need | Best tool | Notes |
|---|---|---|
| Case costs / payroll between settlements | Line of credit (AR/WIP or case-cost) | Revolving; sized on billings & case inventory |
| Partner buy-in / buyout | SBA 7(a) | ~10–20% down; retention & book portability matter |
| Acquire a retiring attorney's practice | SBA 7(a) | Goodwill-based; transition plan is key |
| Lateral hires, marketing, build-out, tech | Term loan / SBA / equipment loan | One-time growth investments |
See using an SBA loan to buy a business and business lines of credit.
What Lenders Check
- Billings & collections history and realization rates.
- AR / WIP quality and aging; for PI firms, case-inventory stage and settlement track record.
- Client/matter concentration — reliance on one large client or one big case is a risk.
- Partner comp & DSCR — coverage after reasonable owner pay.
- For buy-ins/acquisitions: retention, transition plan, and the buyer's portable book.
See what lenders look for in an SBA loan.
Next Step
Match the tool to the need: a revolving line for case costs and timing gaps, an SBA 7(a) for a buy-in or acquisition. Get matched with law firm lenders to structure the right mix for your practice.