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Law Firms Look to Partners for Cash

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updated Aug 30, 2014

By Author - LawCrossing

07/08/08

So what are law firms faced with a cash crunch doing? After all, all those exorbitant salaries have to be paid somehow. Clients are taking longer to pay as they also suffer from a slowing economy.

How to raise money? Increasingly, firms are turning to their partners for the cash on hand. Law firms borrow, of course, but in the last few years, law firms have turned to their partners, to whom they most likely have just paid out massive sums, to get money back.

United States
According to Citi Private Bank, a company that tracks this kind of thing, law firms had a liability of around 14.1% in 2007, as opposed to just about 20% back in 2000. Law firms are inherently conservative, and the 2002 collapse of Brobeck, Phleger & Harrison due to debt has scared off many from taking out loans. Increasingly, as well, newer partners are being required to make their partnership buy-ins up front, not just deducted from their distributions.

Still, expect more loans to be made to law firms as the economy tightens and the more poorly run firms take a hit.
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