How to Finance Your New Law Practice

Congratulations. You have made the important and career-changing decision to start your own law practice. You may have a decade of legal experience or this may be your first year out of law school. You have many important decisions ahead of you, and one of the most important is where to get money to finance the opening and running of your new practice. This decision will have a large impact on the success or failure of your law practice. Before we get into financing options and the pros and cons of each, a few words on how much you should borrow.

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Your goal should be to borrow as little money as possible. Write down a list of everything you will need money for, things like: new computer, office, office supplies, marketing, advertising, website, etc. After you study the list, cross off as many things as you can. If you have a working computer, do you really need a new one? Do you need to buy new office furniture when you could buy used furniture for a fraction of the price? You get the idea.

When I started my practice eight years ago, I did it on the proverbial shoestring budget. I was careful with every dollar I borrowed. If I had borrowed a bunch of money, the debt could have destroyed my practice and I would have been finished before I ever really got started. If you are not 100% sure you need to spend money on something for your office, the answer is you don’t. Once you cut down your list of things, look at the list again and cut more stuff. Is it absolutely essential that you buy the item on the list? Once you are down to the bare necessities, you have several options for financing what you need.

When I talk to attorneys who are thinking about starting their own practice, the first place they think of to turn to for money is a bank. A bank is the most obvious place to borrow money, and not the worst place to start, but it is also not the best. The first problem with the bank is that if you are starting a new practice, it may not want to lend to you. The bank may see you as a high-risk loan. This will especially be true if you are young or don’t have a great credit history.

The bigger problem with a bank loan is that the bank will probably loan you more money than you need. Banks make their living off interest. The bigger the loan, the more interest for the bank. The problem with this is that it will be hard for you to say no to being offered more money. The bank will say stuff like, “Just borrow the money and put it to good use, the more you borrow the faster you can grow your practice.” The bank is not on your side; the bank is on the bank’s side. Remember you want to borrow as little as possible.

Another place to consider for financing your firm is the Small Business Administration (SBA). The good thing about the SBA is that since it is a federal agency it has very good loan rates. Its entire purpose is to help small businesses get off the ground. Borrowing from the SBA has two major downsides. The first is that it requires a lot of paperwork. When I looked into an SBA loan, I was amazed at the number of forms I was supposed to fill out. A lot of forms means a lot of red tape and lot of bureaucracy to navigate. The second downside is that it will take a long time to receive your money. Having to wait six months or more is not unheard of. This means that you may be stuck and unable to open your practice while waiting for the money. When I was getting ready to open my own practice, waiting six months or more was totally out of the question. I had quit my crappy job and had to start my practice right away, which meant I needed financing right away.

Another source of financing to consider is family and friends. Everyone’s situation is different, so this will not work for everyone. I know people who would rather starve on the street than ask their family for money. The big advantage to borrowing from family is that they will probably charge you less interest than the bank. You might get lucky and get charged no interest. I say family and friends because maybe you have a wealthy friend, or your family has a wealthy friend that wants to help you succeed. Just because you know the person you are trying to borrow money from doesn’t mean you should be unprepared when you speak to them. Be prepared for tough questions. Don’t just plan of waltzing in and waltzing out with a check.

The final source for financing is my favorite—and the one I used to start my practice. I encourage attorneys starting a practice to consider financing their new practice through a credit card. When I first say this, people hesitate, because we all know about the perils of credit card debt. While it is true that credit cards can be dangerous, I think in this case the benefits can outweigh the risks.

The first major benefit is that it will be easier to qualify for a new credit card than it will be for a bank or SBA loan. The second major benefit is that you will have access to the money much faster. Once you are approved for a credit card, you have access to money. The third benefit is that you can find a credit card that has a special introductory period of 0% interest. Often a card will offer six months or even a year at no or very low interest. If you can find a card with 0% interest, you are getting an interest-free loan. Try finding an interest-free loan at a bank.

The fourth benefit is that you will be forced to control your spending. This will happen in two ways. First, chances are your new credit card will have a fairly low spending limit. Try to find a credit card that has a limit of several thousand dollars. The limit will force you watch your spending, as you know that once you are over the limit, there is no more money to borrow. Second, the credit card will control your spending because each month your statement will tell you how much you owe. If you spend a lot, your statement will remind you about it. Remember our goal is to borrow as little as possible and constantly seeing how much you owe is a great reminder.

About the Author

Alexander Y. Benikov is a criminal defense lawyer in Phoenix, AZ. You can reach him at 602.253.6592, ayb@benikovlaw.com, or on Twitter @AybFirm.

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