Statistics show minority-owned businesses have a harder time accessing capital than white-owned businesses. That problem seems to spread across all business sectors like finance, manufacturing, technology, and law. Many people forget until they get the bill that law firms and lawyers are in business. They have all the worries and problems other business owners have, like making payroll, paying insurance, taxes, and finding new business.
Law firms are not immune from traditional business problems. One of the biggest issues they have to deal with is access to capital. There have been numerous studies and reports about why it’s harder for minority businesses to get money for their operations, yet the problem persists. According to the Minority Business Development Agency, many minority businesses depend on short-term debt or revolving lines of credit to keep their operations running.
The manner in which a retail shop or financial business will repay a bank loan is pretty straightforward. Therefore, it is easier for such businesses to obtain traditional financing. In general, law firms have a harder time acquiring capital because their assets (contingent fee portfolio of cases) are difficult to measure and price.
Law firms need lines of credit to keep their operations running smoothly. In addition, reaching a settlement doesn’t necessarily equate to getting paid. Oftentimes, there is a lengthy delay between time of settlement and payout of the legal fee. This is especially true with class action lawsuits, MDL’s, and personal injury cases where Medicare is involved. This is where post-settlement funding is a viable solution, as it converts legal fees associated with settled cases into immediate working capital.
The traditional financial avenues such as banks and credit unions are not going to change their standards for minority-owned law firms to get a bigger slice of capital. Minority-owned practices will have to find new sources of money in order to expand and maintain their operations. Legal funding, also known as law firm funding, is a new way for law firms to get the kind of capital they need. Legal funding companies are for the most part run by former lawyers or people knowledgeable about the legal industry. Therefore, they understand the true value of your contingent fee portfolio and can advance you significantly more than a traditional financial institution could.
In this economic climate, minority law firms should know that their access to capital is only going to get tougher. Many experts say it will be a long time before economies bounce back, which means lending standards are going to be even tougher. It is important to understand that there are alternative capital sources to consider. Justice waits for no man and having law firm funding can mean a win-win for the plaintiff’s attorney and their client.
Written by Lulaine Compere.