Law firm loans are ordinary business financing (lines of credit, term loans, SBA loans, equipment financing and case cost lines) that your practice repays on a set schedule whether or not a given case pays off. That is the main difference from litigation funding, where an outside funder is repaid only if a case succeeds, and where lawyers’ ethics rules limit what a firm can agree to. For the wider picture of financing for firms that sell expertise rather than products, start with our professional services business loans hub.
The right product depends on why the firm needs cash. A contingency-fee practice fronting expert fees on a case that runs for years has a different problem from an hourly firm waiting months on invoices, and both differ from a partner buying out a retiring founder.
Why law firms borrow
Law firm cash flow is lumpy. The most common reasons practices look for financing are:
- Case costs on contingency matters. Filing fees, experts, depositions and medical records all come due long before a settlement or verdict.
- Slow receivables on hourly or flat-fee work. Corporate and insurance clients often pay on their own schedule, while payroll and rent do not wait.
- Hiring. A new associate or paralegal costs money for months before their work is billed and collected.
- Technology and office build-outs. Practice management software, document systems, furniture and leasehold improvements.
- Buying a practice or a partner’s stake. Succession deals and partner buyouts are acquisitions and are usually financed like one.
- Buying the office building. Owner-occupied real estate can be financed separately from working capital.
Financing options for law firms
The table below sets out the main options. Pricing varies by lender and borrower, and the specialist lender we checked does not publish rates, so the table shows how each product works rather than what it will cost you.
| Option | Typical use | How it is repaid | Watch for |
|---|---|---|---|
| Working capital line of credit | Payroll, rent, marketing between collections | Draw and repay as needed; interest on what you use | Annual renewal, covenants, personal guarantees |
| Case cost line of credit | Out-of-pocket expenses on contingency cases | Paid down as cases resolve | State rules on passing interest to clients |
| Term loan | Hiring, technology, buyouts | Fixed payments over a set term | Prepayment terms, collateral |
| SBA 7(a) loan | Working capital, equipment, partner buyouts, real estate | Monthly payments; up to 10 years for working capital or equipment, up to 25 years for real estate | Paperwork, guaranty fee, time to close |
| SBA 504 loan | Buying or renovating the office building | 10-, 20- or 25-year terms | Fixed assets only; no working capital |
| Equipment financing | Computers, servers, phone systems, furniture | Fixed payments; the equipment is the collateral | Short useful life of tech equipment |
Case cost lines of credit
Case cost lines were built for contingency firms. Esquire Bank, which specializes in lending to law firms, describes its product as giving “qualifying contingency fee law firms with access to funds to cover out-of-pocket expenses for the duration of a lawsuit by using their case costs and case inventory as collateral” (Esquire Bank). The firm, not the client, is the borrower, and the firm repays the line whether or not a particular case wins.
Some firms pass the interest on that line through to clients as a case expense at settlement. Whether you can do that depends on your state. Esquire’s own guidance tells firms to “check with your state bar association to ensure your state supports this” before planning on it (Esquire Bank LawyerIQ).
SBA loans
SBA 7(a) loans go up to $5 million and can pay for working capital, equipment, real estate, debt refinancing and changes of ownership, according to the SBA. Maximum terms are 10 years for equipment and working capital and 25 years for real estate (SBA terms and conditions). For a partner buyout or a practice acquisition, a 7(a) loan is often the longest-term option available. Read our guide to SBA 7(a), 504 and microloans for the differences.
If the firm wants to own its office, the SBA 504 program finances buildings, land and long-life equipment, with a maximum of $5.5 million and 10-, 20- and 25-year terms. It cannot be used for working capital (SBA 504).
Business loans vs. litigation funding
These two get confused, and the difference matters for a lawyer.
A business loan is a debt of the firm. You repay principal plus interest on a schedule, and the lender’s claim does not depend on how any case turns out. Most small-business loans also carry a personal guarantee from the owners (see personal guarantee vs. no-PG loans).
Litigation funding (also called third-party litigation finance) usually works the other way. A funder advances money against one case or a portfolio of cases and gets paid only if those cases produce a recovery. Because repayment is tied to case outcomes and, often, to the firm’s fees, it runs into rules on fee sharing and professional independence.
The ethics rules vary by state, so treat what follows as background, not advice:
- Fee sharing. California’s Rule 5.4(a) opens: “A lawyer or law firm shall not share legal fees directly or indirectly with a nonlawyer” (State Bar of California, Rule 5.4).
- Funding tied to fees. The New York City Bar’s Formal Opinion 2018-5 concluded that a lawyer-funder arrangement where the lawyer repays only if the lawyer receives legal fees “violates Rule 5.4’s prohibition on fee sharing with non-lawyers.” In 2024 the City Bar’s Professional Responsibility Committee recommended amending New York’s rule to allow non-recourse funding tied to specific cases (New York City Bar Association).
- Advancing costs to clients. Rule 1.8(e) generally bars lawyers from giving clients financial help with litigation, but North Carolina’s version, for example, lets a lawyer “advance court costs and expenses of litigation, the repayment of which may be contingent on the outcome of the matter” (North Carolina State Bar, Rule 1.8). This is why a firm can borrow to fund case costs and recover them at settlement.
- Client money is not firm money. Rule 1.15 requires a lawyer to hold client property “separate from the lawyer’s own property” (D.C. Bar, Rule 1.15). Balances in your trust or IOLTA account are not the firm’s cash, cannot be offered as collateral and should never be used to cover a loan payment.
If repayment under a financing offer depends on a case result or on your fees, get an ethics opinion from your state bar or ethics counsel before you sign. A conventional loan or line of credit avoids most of these questions because repayment does not depend on any case.
What lenders look for
Lenders underwrite law firms much as they do other professional practices, with a few legal-specific twists:
- Cash flow history. Recent business tax returns, year-to-date financial statements and recent bank statements are the usual starting point. Our list of documents lenders ask for covers the basics.
- Debt service coverage. For SBA 7(a) Small Loans, lenders must show “the Applicant’s debt service coverage ratio must be equal to or greater than 1.1:1 on a historical and/or projected cash flow basis” (SBA Procedural Notice 5000-875701). Conventional lenders set their own thresholds.
- Case inventory (contingency firms). Case cost lenders look at the firm’s docket because case costs and case inventory are the collateral, as Esquire Bank describes it.
- Receivables (hourly firms). Aged receivables and realization rates show how reliably billed work turns into cash.
- Owner credit and guarantees. Expect lenders to review each owner’s personal credit and to ask the owners for personal guarantees.
- For SBA loans, the SBA’s own tests. The business must be a for-profit US business that is small under SBA size standards, creditworthy and “unable to obtain reasonable credit from non-government sources” (SBA).
What it costs
We have left rate ranges out on purpose. Case cost lenders such as Esquire Bank do not publish rates, and we could not find a published law firm rate range we could verify. For SBA 7(a) loans the SBA sets maximum rates as a spread over a base rate, and the cap narrows as loan size rises; the SBA also charges an upfront guaranty fee that it publishes for each fiscal year (SBA Information Notice 5000-872051). Ask any lender for the rate, every fee and the total repayment cost in writing, then compare offers on total cost, not just the monthly payment. Our business loan calculator can help you check the math.
Pitfalls to avoid
- Short-term money for long-term cases. Merchant cash advances and daily-payment products are built for businesses with steady daily sales. A personal injury case that takes years to resolve is a poor match for a product repaid out of every deposit.
- Signing a “funding” agreement without an ethics review. If repayment depends on fees or case outcomes, it may raise fee-sharing issues in your state.
- Touching the trust account. Never count trust balances as firm liquidity or use them to cover a shortfall, even briefly.
- Ignoring partnership changes. Loan agreements often treat a change in ownership as a default. Plan partner exits and additions with your lender.
- Borrowing against one big case. Concentration risk cuts both ways. If a single verdict decides whether the firm can repay, the loan is too big.
FAQ
Can a law firm get an SBA loan?
Law firms can apply like other for-profit small businesses. The SBA’s general tests apply: the firm must be operating in the US, meet size standards, be creditworthy and be unable to get reasonable credit elsewhere. SBA loans are made by participating lenders, which set their own credit standards on top of the SBA’s.
Is litigation funding the same as a law firm loan?
No. A law firm loan is repaid on a schedule regardless of case results. Litigation funding is usually repaid only if a case produces a recovery, which is why it raises fee-sharing and independence questions under state ethics rules.
Can I charge clients the interest on a case cost line of credit?
It depends on your state’s rules and ethics opinions, and on your fee agreement. Check with your state bar before you rely on it.
Can a firm use its IOLTA or trust account balance to qualify for a loan?
No. Client funds in trust belong to clients, must be kept separate from firm money and cannot secure or repay a firm loan.
What if my firm is too new for a bank?
Newer practices often start with smaller lines of credit, equipment financing or an SBA 7(a) loan backed by the owner’s personal credit and a clear business plan. Expect lenders to ask for personal guarantees and a contribution of your own money.
Next step
If you are weighing a line of credit, a term loan or an SBA loan for your practice, our professional services business loans page explains how we compare offers from the lenders we work with, and business line of credit covers revolving options in more detail. Have your recent tax returns and bank statements ready and you can see what your firm is likely to qualify for.
Sources
- U.S. Small Business Administration: 7(a) loans
- U.S. Small Business Administration: 7(a) terms, conditions and eligibility
- U.S. Small Business Administration: 504 loans
- SBA Procedural Notice 5000-875701: Sunset of SBSS Score for 7(a) Small Loans
- State Bar of California: Rule 5.4
- New York City Bar Association: Proposed amendments to Rule 5.4 on non-party litigation funding
- North Carolina State Bar: Rule 1.8
- D.C. Bar: Rule 1.15 Safekeeping Property
- Esquire Bank: Case cost financing
- Esquire Bank LawyerIQ: 9 steps to acquiring a case cost line of credit
About this page. Written by Ezra Cabrera, Content Team Lead at SMB Compass. Figures were checked against the primary sources listed above on September 21, 2026; lenders change their terms, so confirm current terms before you apply, and let us know if you spot a figure that has changed. SMB Compass is a business financing broker: we don’t lend our own money, and we are paid by the lenders we place loans with. This page is general information, not financial, legal or tax advice.