Once you do earn your stripes, being an attorney, whether you specialize in corporate law, criminal law, or otherwise, can be a profitable and rewarding career. After all, people will always be in need of someone to speak up for them when no one else will. So, if you’re running a private law firm, it’s important that you always have the right business financing to fall back on. At Loans Canada we can help you secure this financing. We’ll leverage our years of experience to connect you with a business loan lender who can help you create the type of law firm you’ve always dreamed of owning.
How a Business Loan Can Develop Your Law Firm
As you know, when a client enters your workspace, they want to be presented with an air of professionalism and the idea that your firm is the best in the business. Therefore, your space needs to look the part. Here are just some of the elements that you can afford with ease when you get a business loan through us:
Comfortable chairs and other furniture to fill your waiting room
Sufficient financing to pay all your employees (secretaries, accountants, associates, paralegals, technical support, cleaners, etc.)
Additional financing to take on more staff when needed
Furniture, equipment and supplies for your staff break room (fridge, microwave, tables, chairs, cupboards, dishes and cutlery, etc.)
Modifications to your existing and future spaces (cubicles, windows, walls, etc.)
You can increase your chances of securing a loan at an affordable rate by improving your law firm’s financial standing. Here are some factors lenders look at when evaluating your loan application:
Your personal and business credit score is an essential element that lenders consider when assigning your rate, so getting acquainted with these figures is crucial.
Start by obtaining a credit report to determine your personal credit score (and one for your law firm, if it’s already up and running). Ensure there are no errors or fraud charges, as these can lower your score. If your personal credit score is low enough that it hinders your ability to obtain a low rate, work to enhance it by making timely debt payments and limiting the amount of debt your carry. Apply the same principles to your law firm by paying your bills on time, keeping your credit utilization low, and limiting your access to few credit products.
In addition to exercising prudent debt management, you should separate your personal credit from your law firm’s credit. Always strive to finance your law firm using business loans, business credit cards, and business lines of credit. Mixing personal credit with business credit is unwise, as you can damage both simultaneously, should you mismanage your debt obligations.
Increasing your revenue is a great way to signal to lenders that you’re able to make consistent payments on a loan; they may be more willing to qualify you for a low rate. You can boost your revenue by asking existing clients for referrals, conducting targeted marketing campaigns, sponsoring events to increase your visibility in your community, and networking with accountants, investment advisors, and other professionals to expand your client pool.
Improve Cash Flow
When it comes to cash flow management, be proactive by billing your clients promptly and work to collect payment as quickly as possible. Cash flow is a key component of your business that lenders evaluate, so ensure you routinely communicate with your clients about outstanding invoices.
Give thought to lowering your expenses so that you decrease your reliance on debt. If this isn’t an option, consider consolidating your debt or focusing on paying down the most expensive debt first.
Secure The Loan With an Asset
Pledge your vehicle, personal residence, or another asset as collateral to gain access to credit. Lenders will be more inclined to assign you a low-interest rate if an asset is backing the loan, as it can be sold and converted into cash to pay off the principal.
Write a Business Plan
Some lenders place substantial importance on the future potential of your business when assessing your loan application. As a result, it’s worth your time to craft a compelling business plan. Your plan should provide an overview of the proposed firm and explain the fundamentals of the business. Some items you should cover are:
Firm description, history, values, and goals
Management and firm organization
Industry growth and competition
Projected revenues and profit margins
Market analysis of target customers
Income statements, balance sheets, and cash flow statements
Compare Rates and Get Quotes
Doing extensive comparison shopping is an excellent way to find a lender that can accommodate your law firm’s financial needs. Many lenders utilize sophisticated online platforms to quickly and efficiently collect and evaluate applications, providing borrowers with preapproved quotes. With more competition than ever before in the lending market, you’re sure to uncover one that can extend credit to you at an affordable rate.
What Should a Law Firm Consider When Getting a Business Loan?
Keep the following in mind when applying for a business loan:
Loan Amount – Analyze your firm’s budget to estimate how much you can afford to pay each month; don’t borrow more than you need. Assess your monthly revenue, cash flow, and profit margin, as these are the most critical factors that determine the loan size you can afford. Estimate the amount of cash your firm brings in each month – your debt payment schedule should be closely aligned with your cash receipt schedule so that you don’t fall behind on payments.
Term Length – Assess the loan term length and your ability to make regular payments. Is the loan needed to finance your working capital or a large expansion? The former is usually funded with short-term loans that cover a few years, while the latter requires long-term financing over many years.
Interest Rate – Interest rates have a significant effect on the cost of your loan. Established firms with consistent track records can usually secure a low rate, while new firms often are assigned higher rates. Also, the rates on short-term loans are generally higher than those on long-term loans.
Fees – Always inquire with lenders about the fees attached to a loan, as they increase the overall cost of financing. Some common extra charges include late fees, origination fees, and prepayment fees.
Type of Financing Options Available for Lawyers and Attorneys
There are many choices available when it comes to financing your law firm.
Your law firm likely bills clients through invoices, which means you won’t receive payment right away. If your invoices remain outstanding for a long time, invoice financing is a feasible option that can inject cash into your business quickly. This method of financing involves a lender giving you a cash advance on pending invoices. Once the clients pay you, you pay back the funds to the lender. Most lenders who use this model will lend you a large percentage of the pending invoices’ dollar amount.
Business Credit Cards
A business credit card is used to finance your firm’s expenses and capital investments. Credit cards can provide you with quick access to funds you can put toward anything you need, from office supplies to computers. Some credit cards offer 0% APR for a limited time, allowing you to make purchases without incurring interest charges. Others enable you to collect points or cash back through a rewards program.
Business Line of Credit
A business line of credit is a great financing solution, as it allows you to draw funds when you need them. Credit lines function in a similar way to credit cards, but they often have higher limits. They are useful when you require a quick infusion of cash into your business or simply wish to stabilize your cash flow.
Business equipment loans are a special type of loan issued to help businesses pay for equipment. Equipment loans can help you finance the purchase of higher-priced items normally used by law firms, such as computers, printers, and copiers. Because they already have the collateral built into them (the equipment you purchase), they are relatively easy to acquire. You also get the benefit of preserving your cash for everyday expenses.
Canadian Small Business Financing Program (CSBFP)
These loans are offered by banks and credit unions, and most of the principle (up to 75%) is backed by the Government of Canada. To be eligible, your firm must earn less than $10 million in revenue annually. Due to government-guaranteed protection in case of default, CSBFP loans are easier to obtain and come with lower interest rates than personal or general-purpose business loans. You can use CSBFP loans to purchase or improve a variety of business assets.
What documents do I need to apply for a business loan?
Be prepared to provide the following when completing a business loan application:
Bank account statements – Expect to include several monthly statements so lenders can view your cash receipts and disbursements.
Balance sheets – Lenders will want to see what assets you own and liabilities you have to gauge the level of risk associated with lending to you.
Asset documents – You can leverage your current assets as collateral to secure a better interest rate on your loan.
Personal documents – Standard personal details to verify your identity.
Business license – You must possess a business license to be legally allowed to operate your law firm; otherwise, lenders will not approve your loan request.
Should I get a long-term or a short-term business loan?
Whether you opt for a long-term or short-term loan depends on two factors: your needs and your budget. Long-term loans are suitable for large expansions such as the purchase of real estate or expensive equipment. They are less expensive, as they offer lower interest rates, but are more difficult to qualify for. Short-term loans are more geared towards smaller purchases. They are more expensive, as they come with higher interest rates, but are easier to qualify for.
Can I qualify for a business loan if I have bad credit?
Yes. You can get approved for a business loan with bad credit, but the approval is unlikely to come from a bank. Your best chance of obtaining financing is through an alternative lender. These lenders have softer eligibility requirements and base their lending decision on other factors, such as your revenue, assets, and business plan.
Get Started Today!
For the benefit of your law firm and your clients, apply with us now. Remember, Loans Canada is always here to help you with your business loan needs.
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