Cash flow constraints pose unique challenges to contingent-fee practices, so securing a loan or line of credit for your law firm can be an important means to keep you well positioned to handle all of your clients’ needs.
But, when it comes to obtaining financing for your firm, you may start to worry about potential conflicts of interest and whether—consciously or unconsciously—you’ll inadvertently place your obligations to your lender above your obligations to your client.
Below are 2 reasons why it won't:
Law firm financing in the form of a business loan or line of credit is typically structured to provide your firm with the capital necessary to conduct business operations and to fund your cases. This means it provides you with the ability to continue to exercise your independent judgment; both in the macro sense (for the firm) and in the micro sense (for an individual client or case).
As with financing provided to other types of businesses, the needs of your firm dictate how you deploy the resources available to you. If you need funds to pay operating expenses while waiting on a settlement, then you may elect to use your line of credit to do so. The same applies when you have a trial date approaching—you can use your credit line for your client’s trial expenses or to pay operating expenses while you are otherwise engaged.
Additionally, most jurisdictions have rules and regulations prohibiting third-party financing companies from directing or otherwise regulating a lawyer’s professional judgment.
Nevertheless, it’s important that you choose a funder who values your ethical responsibilities and won’t exert any outside influence on your firm or your cases. In the unusual instance where a finance company might offer you unsolicited advice or assert improper influence, you can simply point to the applicable authority in your jurisdiction to ensure your lender understands it must cease and desist from any such conduct, whether intentional or unintentional.
Another fear may be that you could inadvertently place your clients’ best interests below the obligations to your lender.
The theory here is that your concern about repaying the debt may override sound legal analysis and decision-making in a case, causing you to settle a case for less than it is worth, so you can utilize whatever fee you can to pay down your line.
In fact, the exact opposite is more likely to occur.
When you are worried about cash flow or having sufficient capital to run your firm, you may be tempted to resolve a case early or for less than the true value just to bring cash in the door.
However, if you’ve acquired adequate financing to alleviate such short-term cash-flow concerns, then you’ll be able to zealously advocate for your client throughout the entire litigation.
With adequate financing, you gain the power to hire the best experts, weather mounting expenses that will likely escalate rapidly during protracted litigation and stay the course through a verdict or an appeal—all while keeping the lights on and your staff and vendors paid. Law firm financing will enhance, rather than impede, your ability to advocate for your clients in the long run.
In short, don't let professional responsibility concerns drive you away from financing. It’s in the best interest of a lender not to interfere with either your independent professional judgment or your relationship with your client. A business line of credit is designed not only to provide financial stability, but also to give you the opportunity to grow profitability.
Because each jurisdiction has its own ethical cannons and disciplinary rules however, you should always consult the legal statutes, cannons and rules applicable to your practice for instruction. In addition, you should consider seeking an opinion from the local bar or ethics committee for further guidance.