Key Expenses SBA Loans Can Cover For Law Firms

Business Funding Group LLC (BFG) has decades of experience supporting law firms with obtaining financings. Both SBA and non-SBA loans.

Running a law firm comes with challenges that might not have been covered in law school. Case management, how to find clients, and the day-to-day operations can be expensive. That is where SBA loans come in and can make a big difference.

Small Business Administration (SBA) loans are backed by the government and are available to small businesses that are looking to grow. Depending on the loan program you choose, law firms can utilize the funds for a wide variety of needs.

The Most Common Expenses Law Firms Use SBA Loans to Cover

The SBA 7a loan program is the most popular among the attorneys we work with because it can be used for any business-related expenses, including real estate, marketing and advertising, and hiring new personnel, and you can borrow up to $5,000,000. The 504 loan program is less common because it can only be used for real estate, and is typically used for larger transactions, say $2M +.

The top two ways of using an SBA 7a loan for attorneys are:

1. Buying an office + working capital
2. Straight working capital loans

Buying an Office With Additional Funds for Growth

Under the 7a loan program, the banks BFG work with, allow you to purchase office space for your practice as well as take out additional capital for growth. When buying an office with an SBA loan, you must occupy at least half of the building you are buying, which means you can rent out the rest and create an additional revenue stream, and will allow you to expand into that space as your firm grows.

As long as half of the money you borrow is for real estate, you can get additional working capital on top of the purchase price – which means that not only can we structure loans with 0 money down, but you can walk away from the closing table with money!

The SBA 7a real estate loans are 25-year term loans with a typical interest rate of prime + 2.75.

Working Capital

The SBA 7a loans can be used for any legitimate business expenses. Other than rent, marketing and personnel are the highest costs a law firm faces, and therefore the most popular uses.

Utilize an SBA loan to:

• Hire additional staff
  • Lawyers, paralegals, support staff
• Marketing
  • Online, SEO, PPC etc.
  • Content, PR, branding
  • Networking events, sponsorships
• Case related expenses
  • Expert witnesses
  • Travel
• Technology and software
  • Case management
  • Cybersecurity
  • Research tools
• Insurance
• Operational & Administrative

If you own a contingency law firm facing short-term cash flow issues, an SBA loan can help.

SBA Loans Compared to Traditional Bank Loans or Other Legal Lending

What your law firm wants to use the money for is what should drive the decision on which loan to get.

BFG’s lawyer specialists will be able to guide you, so give them a call.

Purchasing a Building

When buying real estate, you probably will be able to get a better interest rate if you go to a traditional lender. But you will have to put down 20-30% money down – money that you could use to grow your firm. Under the 7a loan program, as long as you cash flow, BFG can help structure loans with 0 money down + working capital.

The 20-30% that would be required from a traditional bank loan could better be used in ways that grow your practice, such as acquiring new cases and hiring new lawyers. The lower interest rate of a bank loan might actually cost you more money, vs. the net financial results you would obtain with an SBA loan.

Working Capital

BFG works with several different lenders, both banks and non-banks, offering financing to law firms. The top 3 alternatives for law firms looking to grow are:

1. SBA 7a
2. Lines of Credit
3. Legal Lending

7a working capital loans are 10-year term loans with a typical interest rate of prime + 2.25, comparable to industry standards for lines of credits and much cheaper than other legal lending or non-recourse loans.

One of the benefits of a 7a loan vs. a line of credit for attorneys is that 7a loans can only really be canceled for nonpayment, you get the funds distributed at closing, and there is minimal to no oversight on how you utilize the funds.

An additional benefit of the working capital loans is that the lenders BFG works with do not have any requirements of being the first lien on business assets. So in most cases, if you already have a credit line that will not be a hindrance.

Contact BFG to Discuss an SBA Loan for Your Law Firm

At Business Funding Group (BFG) we have a long history of assisting law firms with growth. The banks we work with have become familiar with the ebbs and flows of contingency law firms. They also have an excellent record of repayment, so they have learned to like lending to attorneys.

Whether you would like to begin the application process or need more information about what expenses SBA loans can cover for law firms, give us a call.

Call us today for a free 10-15 minute consultation to see if we can help you!

Reach out to our team for more information today.