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As you are probably well aware, collection law firms are being asked to front court costs for their clients more and more frequently. These costs can be substantial, especially for a law firm that is in a growth mode. We recently learned of commercial lender, Advocate Capital, Inc., that offers strategic financing for law firms. They have historically serviced plaintiff law firms but have recently found a need among collection attorneys as well. They have successfully offered financing to collection law firms to front court costs on behalf of clients.
We spoke with Michael Swanson, CEO of Advocate Capital, Inc. to see what they have to offer.
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NL: What service do you provide to law firms?
Advocate Capital: We are a commercial lender that specializes in loaning strategic capital to law firms. Our main service is providing lines of credit to law firms all across the country. In the world of plaintiff law firms we also provide specialized accounting services to trial law firms that enable them to pass through the cost of capital to their cases, although that service doesn't seem to apply in the collections market.
NL: How does it work?
Advocate Capital: The loan process is very simple. We start with a free, quick screening application. If the firm passes that first step, we gather particular financial documents very similar to what a bank would collect (financial statements, tax returns, etc.). Then our Credit Committee reviews the application and documents and decides upon an appropriate line of credit, always trying to meet or exceed the client's expectations.
NL: Why should a law firm use this service?
Advocate Capital: There seem to be a few different reasons that collection law firms have been coming to us rather than going to their bank, or in replacement of their bank lines with our products. First, we can typically lend several times more capital than a bank can. This is important to a successful firm that is growing but has become hemmed in by insufficient bank financing. Secondly, we do not require our lines to be paid down to zero every year like many banks do. Our annual underwriting and review of the line of credit allows us to be very responsive to our clients changing needs. Lastly, we understand law firms in general and the collection law firm business model in particular much better than banks do and can be much more flexible to deal with.
NL: What are the costs involved?
Advocate Capital: We are more expensive than most banks, but as mentioned previously, the additional costs can easily be justified in a collection law firm that is growing. Our standard pricing on law firm working capital lines of credit is Prime (presently 7.25%) plus 4% with a 2% annual fee based upon the size of the line of credit.
NL: What does a law firm need to do to get approved?
Advocate Capital: The law firms that are the best fit for us are established, successful firms with stable histories, partners that have good credit and good net worth, no ethics or disciplinary problems, etc. We do NOT do business with law firms that are in trouble financially and need money. Our clients use us as a strategic tool to enable and encourage the growth of already-successful practices.
NL: Is there a minimum or maximum amount that can be received?
Advocate Capital: Yes. The minimum line of credit is $150,000 and the maximum is $2,700,000.
NL: What's the benefit to using Advocate Capital to fund court cost expenses as opposed to using ones own money or financing through ones own bank?
Advocate Capital: Our collection law firm clients tell us that it is primarily our ability to loan so much more than a bank can. For example, a collection law firm that is now a client of ours in Atlanta, GA had been growing and needed to begin filing several thousand more cases per month in the courts. Their bank was willing to increase their line from $200,000 to $400,000. We were able to come in and give them a line of credit for $1,750,000. The difference in cost between us and the bank was easily offset by the huge upside of being able to file thousands more cases per month and to thereby grow the law firm even further. Having access to the larger line of credit has impacted their internal cash flow in a very positive way and quickly increased their profitability.
NL: Do you have to pay the balance in full each month or annually or can you carry a balance continually?
Advocate Capital: Unlike many banks, we require neither monthly nor annual pay downs of principal. As long as a law firm client is in compliance with the terms of our agreement (paying their interest on time, annual renewal, etc.) there is no restriction on balances.
NL: What else can a law firm finance through Advocate Capital other than court costs?
Advocate Capital: Good question. Although the big interest from collection firms seems to be regarding court costs, our lines of credit are not restricted to any particular use. As long as a firm uses the funds for legitimate, commercial needs, they can use the funds as they see fit (advertising, payroll, etc.). In fact, we are presently processing applications from a few firms that plan to use our line of credit to purchase debt for the law firm to collect.
NL: Does Advocate Capital adhere to the same regulations a bank does?
Advocate Capital: We are a commercial lender, not a bank, so we are much less constrained by regulations than banks are. Our technical designation is an Industrial Loan and Thrift and we are regulated by the Tennessee Department of Financial Institutions, but the level of flexibility that we have compared to banks is significant.
NL: How do you get started?
Advocate Capital: The first step is to complete the free, 4-minute screening application by visiting https://www.AdvocateCapital.com/enroll.aspx or by calling us toll free at 1-877-894-9724.
Note from the editor:
If you will be attending the Debt Buyers Association 11th Annual Conference in Las Vegas on February 5-7, Mr. Swanson will be taking private meetings at the Mirage Hotel as his schedule will permit. If you would like to schedule a meeting, please contact his assistant, Dianne Vaughn at 615-577-5449 or dvaughn@advocatecapital.com.
This is a paid advertisement and not in any way to be considered an endorsement of the company, product or service.
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