status: draft

Law firm finance

Law firm financing provides credit facilities to law firms secured by contingent fee receivables across the firm’s case inventory. Unlike case-by-case funding, this is corporate lending to a firm—with the twist that the collateral is unrealized case value.

Why law firms borrow

Use of proceeds:

Purpose	Typical Allocation
Case cost funding	40-50% — experts, discovery, trial prep
Working capital	25-35% — operating expenses during case prosecution
Lateral partner hiring	10-20% — recruitment capital for revenue growth
General corporate	5-10% — office expansion, technology, other

Why not traditional bank financing:

Banks are conservative with contingent-fee practices:

No recurring revenue to underwrite
Collateral (case receivables) is highly uncertain
Revenue recognition is lumpy and unpredictable
Most banks don’t understand litigation risk

Private credit fills this gap. Law firm finance is a ~$3B+ market dominated by specialized funders.

Structure

Core facility terms:

Element	Typical Range
Facility size	$10M-$200M+
Advance rate	50-70% of expected fee value
Pricing	SOFR + 600-1000 bps
Commitment fee	25-75 bps on undrawn
Maturity	2-4 years with extension options
Recourse	Limited recourse to firm; non-recourse to individual cases

Borrowing base mechanics:

The facility operates like an ABL with a borrowing base recalculated monthly or quarterly:

Eligible Case Value (probability-weighted expected fees)
× Advance Rate (50-70%)
= Borrowing Base
- Outstanding Draws
= Availability

Case eligibility criteria:

Factor	Typical Requirement
Case stage	Past initial pleadings; substantive work commenced
Expected fee	Minimum $500K-$1M expected fee value
Case type	Within firm’s established practice areas
Duration	Expected resolution within facility maturity
Concentration	No single case >10-15% of borrowing base

Early-stage cases get haircuts or exclusion. A case just filed might have 30% advance rate; a case post-summary judgment might have 70%.

Pricing and economics

Law firm finance is debt, not equity. Returns are interest-based, not return-share.

Pricing components:

Component	Typical Level
Base rate	SOFR
Spread	600-1000 bps
All-in cost	11-15%
Commitment fee	25-75 bps annually on undrawn
Origination fee	50-200 bps upfront

Comparison to other credit:

Credit Type	Typical All-In Cost
Bank line (Am Law 50)	SOFR + 200-350 bps
Private credit (law firm)	SOFR + 600-1000 bps
Case funding (single)	25-50% IRR equivalent
Case funding (portfolio)	18-30% IRR equivalent

Illustrative pricing. See pricing disclaimer.

Law firm finance sits between bank credit and case funding—more expensive than banks, but structured as debt rather than return-share.

Worked example

Facility profile:

Borrower: Mid-size plaintiff firm
Contingent fee book: $150M across 80 cases
Expected fee value (probability-weighted): $83M
Facility size: $50M
Advance rate: 60%

Structure:

Term	Specification
Pricing	SOFR + 800 bps (~13% all-in)
Commitment fee	50 bps on undrawn
Maturity	3 years + 1-year extension
Covenants	Min 25 cases, max 15% single-case concentration, min 3 equity partners

Use of proceeds:

$25M case cost funding
$15M working capital
$10M lateral partner hiring

Economics:

Assume average outstanding: $35M over 3 years
Interest cost: $35M × 13% × 3 years = ~$13.7M
Funder MOIC: ~1.4x on average deployed capital
Funder IRR: ~13% (matches pricing)

Lower returns than case funding, but with debt-like risk profile and priority over equity.

Covenants

Law firm facilities include covenants tailored to the unique risks of contingent-fee practices:

Case portfolio covenants:

Covenant	Purpose
Minimum case count	Ensures diversification (typically 20-30 minimum)
Maximum single-case concentration	Limits binary risk (typically 10-15%)
Case type distribution	Prevents over-concentration in one practice area
Minimum stage distribution	Requires mix of early, mid, and late-stage cases

Firm-level covenants:

Covenant	Purpose
Key partner retention	Named partners must remain (key-person risk)
Minimum equity partner count	Firm depth and stability
Maximum partner departures	Limits brain drain
Minimum fee realization	Historical realization rate vs. expected
Financial reporting	Quarterly borrowing base certificates, annual audits

Negative covenants:

No additional debt without consent
No significant asset sales (case sales) without prepayment
No change of control or merger
No dividends/distributions above thresholds

Risk profile

Law firm finance has different risks than case funding:

Risk	Description	Mitigation
Firm credit risk	Firm fails before cases resolve	Financial covenants, diversification
Key partner departure	Revenue concentration in few partners	Key-person provisions, partner count minimums
Case concentration	Single case dominates borrowing base	Concentration limits
Realization risk	Actual fees below expected	Historical realization analysis
Duration mismatch	Cases resolve after maturity	Extension options, refinancing provisions
Regulatory risk	Changes to contingent fee rules	Jurisdiction monitoring

Recovery in default:

Unlike case funding (non-recourse), law firm facilities have limited recourse:

Security interest in contingent fee receivables
Ability to step into fee arrangements
Challenge: realizing value requires cases to resolve
Practical recovery: often negotiate refinancing or workout rather than enforce

Who provides law firm finance

Specialized platforms:

Provider	Focus
Burford Capital	Full-service including law firm finance
Longford Capital	Selective, strong track record
Validity Finance	Mid-size plaintiff firms
Law Finance Group	Smaller firms, case-specific facilities

Credit funds:

Fund	Approach
Fortress Investment Group	Dedicated allocation, larger facilities
Ares Management	Selective exposure through credit strategies
Other private credit	Opportunistic, often co-invest with specialists

Traditional banks:

Banks lend to established firms (Am Law 50+) with diversified practices—not heavily contingent-fee practices. If a firm qualifies for bank credit, they’ll pay SOFR + 200-350 bps. Private credit fills the gap for plaintiff-side and contingent-heavy practices.

Diligence for law firm facilities

Firm analysis

Area	What to Assess
Financial statements	Revenue, margins, liquidity, historical volatility
Partner structure	Equity partner count, compensation model, retirement provisions
Case mix	Practice area distribution, fee structure (contingent vs. hourly)
Historical realization	Actual fees collected vs. expected over 5+ years
Client concentration	Any single client >20% of revenue

Case portfolio analysis

Area	What to Assess
Case inventory	Full list with expected value, stage, fee arrangement
Concentration	Single-case and case-type concentrations
Stage distribution	Mix of early, mid, late-stage matters
Duration	Expected resolution timing vs. facility maturity
Quality sampling	Deep dive on largest 10-20 cases

Key partner assessment

Area	What to Assess
Revenue attribution	What % of fees flow from each partner?
Retention risk	Partner age, compensation, satisfaction, non-competes
Succession	Next-generation partners being developed?
Reputation	Any disciplinary history, malpractice claims?

status: draft

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