Many law firms do not have a revenue problem. They have a timing problem. Work is performed in one month, billed in another, and collected later. Contingency matters can stretch the gap further because case costs go out long before a fee comes in.
That gap is often called lockup: value the firm has earned or advanced but has not yet converted into cash. Payroll, rent, expert fees, and filing costs do not wait for it to clear.
A revolving line of credit (LOC) can help smooth that gap. It is not a fix for slow billing, weak engagement letters, or unmonitored receivables. Think of it as a buffer that supports better financial processes rather than replacing them. This guide explains how these lines work, what they may cost, which lenders offer them, and how to apply without violating trust-account rules.
Key Takeaways
- A line of credit is standby capacity, not a lump sum. With a typical bank business line, interest and minimum payments are based on the amount drawn.
- Structure matters as much as the advertised rate. Some prime-based lines require interest-only monthly payments, while others set the minimum at interest plus a percentage of the outstanding balance. That difference affects monthly cash planning.
- Client funds are off limits. Money held in a client trust account, including IOLTA funds, cannot be used for firm operating expenses. Sound cash flow management keeps operating credit and client funds separate.
What a Law Firm Line of Credit Is
A business line of credit provides an approved limit that the firm can draw against, repay, and use again. Unlike a term loan, a line generally charges interest only on money the firm has drawn. Chase, for example, describes interest and minimum payments on its business line as based on the used portion.
Repayment mechanics vary. Wells Fargo notes that some prime-based business lines require interest-only monthly payments on the amount drawn. Other bank lines calculate the minimum as interest plus about 1% of the balance, sometimes subject to a payment floor. Firms should also check for annual line fees, draw fees, transfer fees, and wire charges.
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When a Line of Credit Helps, and When It Does Not
Hourly firms often borrow to bridge collections. Work is billed, clients pay on their own schedules, and payroll still arrives twice a month.
Contingency firms face a different pattern. Expert reports, depositions, medical records, and other case expenses require cash now, while a recovery may be months or years away. A line sized around expected case costs is easier to manage than one used to cover recurring overhead shortfalls.
A line of credit is a poor answer to a structural problem. If realization rates are falling, write-offs are increasing, or expenses routinely exceed revenue, borrowing may only delay necessary changes.
The Main Lender Types
Lenders evaluate law firms in different ways. The best fit depends on the amount needed, intended use, available documentation, and the firm's ability to provide collateral or a personal guaranty.
Traditional Banks
Bank lines can be secured or unsecured. Applications usually require detailed financial records and a personal guaranty from one or more owners. U.S. Bank, for example, notes that its unsecured small-business lines may be capped at around $100,000, while larger amounts typically require collateral.
SBA-Backed Lines
The SBA's 7(a) Working Capital Pilot permits lender-delivered, monitored lines of credit up to $5 million. Under CAPLines, revolving working-capital lines generally have maturities of up to 10 years, with the Builders CAPLine handled separately. These programs may suit firms that can provide complete financial records and accept a longer application process.
Legal-Industry Specialists
Some banks and funders offer products designed for law firms. Esquire Bank provides case-cost lines intended for case disbursements rather than general operating expenses. Specialty providers may also publish their own screening criteria. LevelEsq, for example, states that partners generally need a personal credit score of at least 650. Treat such figures as provider-specific criteria, not industry standards.
What Lenders Review
Expect lenders to review time in business, revenue consistency, deposit patterns, owner credit profiles, existing debt, collateral, and practice mix. A firm with steady hourly billings presents a different risk profile from one with a concentrated contingency docket.
Some lenders may also review accounts receivable aging, case concentration, historical collection rates, and projected expenses. Advertised rates, limits, and terms are specific to each provider, so a single lender's published figures should not be treated as a market benchmark.
Application Checklist
- Several months of business bank statements
- Current profit and loss statement and balance sheet
- Business and personal tax returns for many bank and SBA applications
- Ownership and beneficial-owner information
- Accounts receivable and payable aging reports
- A case-cost schedule, if relevant
- Entity documents and existing loan agreements
Bank and SBA applications generally require the fuller package. Bank-statement programs, including providers that market a line of credit for law firms, may request fewer documents initially. Timelines range from days to several weeks depending on the lender, requested amount, and complexity of the application. No lender can guarantee approval or a specific funding date.
Trust-Account Guardrails
This distinction is essential. Under professional conduct rules, client-owned funds held in trust, including IOLTA funds, must remain separate from the firm's operating money. They cannot be used temporarily for payroll, case expenses owed by the firm, or other operating costs.
Trust-account reporting and recordkeeping requirements differ by jurisdiction and can change. California's Client Trust Account Protection Program illustrates the additional reporting obligations that may apply to firms holding client money. Confirm current requirements with your state bar rather than relying on a lender or funding provider.
If the firm intends to pass case-cost interest through to clients, check whether local rules permit it. Clear engagement-letter language and matter-level interest records may be required. Vendor guidance is not a substitute for jurisdiction-specific ethics advice.
Comparing Offers on Equal Terms
- Total cost, including the rate index, margin, annual fee, draw fees, and wire fees
- Draw and repayment mechanics, including the minimum-payment formula
- Collateral requirements, UCC filings, and personal guaranties
- Covenants, reporting schedules, and annual review or renewal terms
- Early repayment treatment and minimum-use requirements
If a product uses a factor rate or flat fee instead of an interest rate, calculate the total cost and an annualized figure before comparing it with other offers. Verify all eligibility criteria directly with the provider. Redline Capital's page, for example, cites both 600 and 660 as minimum credit scores in different sections. That inconsistency is a useful reminder to confirm thresholds in writing.
Where to Apply
Firms generally have three practical routes. The first is an existing bank, which can already review the firm's deposit history. The second is an SBA-participating lender offering CAPLines or the monitored structure of the 7(a) Working Capital Pilot. The third is a legal-focused funder or broker.
If you prefer a brokered route that evaluates recent cash flow rather than relying primarily on full tax returns, some providers offer a line of credit for law firms based on several months of bank statements. Compare their requirements with the documents you already have before applying. Redline Capital, for example, describes amounts from $30,000 to $750,000 under this model. These are the provider's stated figures, so confirm the available limit, pricing, and repayment terms in writing.
Use the Line Deliberately
Write a short internal borrowing policy before the first draw. Set a target utilization limit, define approved uses, and assign responsibility for monitoring the balance. If the firm plans to pass eligible case-cost interest through to clients, track that interest by matter and confirm that the arrangement complies with local rules.
A line of credit does not make a firm financially healthier by itself. It provides time, and that time is useful only if the firm also improves the underlying cash cycle through faster billing, clearer fee agreements, and consistent collections. Match the credit structure to the firm's cash needs, keep client funds untouched, and review the line size as the docket changes. For advice specific to your firm, consult your accountant and your state bar's ethics resources.