Law Firm Line of Credit

A revolving or term credit facility extended by a bank or specialty lender to a law firm, secured against firm assets — commonly accounts receivable, work-in-process, partner guarantees, or a blanket lien on firm property — and used to fund operating expenses, case costs, payroll, and partner distributions between billing or settlement cycles. Traditional bank lines of credit to law firms are typically recourse to the firm and, in many cases, to the equity partners individually through personal guarantees, reflecting banks' general reluctance to lend against the uncertain, non-recourse nature of contingent fee receivables without additional security. Specialty and non-bank lenders have increasingly offered facilities sized against a firm's contingency-fee docket specifically, sometimes structured as a hybrid between a conventional line of credit and case-cost financing. Covenants on law firm credit facilities commonly include minimum tangible net worth, restrictions on partner distributions above a threshold, borrowing-base formulas tied to eligible receivables or work-in-process, and reporting obligations on docket composition and case status. Because law firm assets are largely intangible and contingent, the borrowing-base calculation — and the lender's discount applied to contingent-fee work-in-process versus billed hourly receivables — is the central negotiating point in any facility.

Lenders discount contingent-fee work-in-process far more heavily than billed hourly receivables in the borrowing base, because contingent fees carry outcome risk that billed-but-unpaid hourly fees do not; a firm with a docket weighted toward contingency work will typically see a materially lower advance rate than a comparable hourly practice.

Personal guarantees from equity partners remain the norm on bank-originated facilities specifically because the firm itself has no hard collateral beyond its case inventory — a fact that has made non-bank capital providers willing to lend against work-in-process alone, at a price, an important alternative for contingency-heavy firms that bank underwriting will not otherwise serve.