Difficult Choices for Law Firms: Borrow More or Pay Partners Less
As clients are slower to pay their legal bills, law firms are choosing among difficult options. They are borrowing more money, reducing partner draws or paying out less money in partner profit distributions.
Despite experiencing some collection problems, law firms are still finding access to loans is relatively easy, according to the Fulton County Daily Report. But banks are increasing their scrutiny of law firm loans, attaching more conditions and requiring firms to use other bank services.
Dan DiPietro, client head of the law firm group at Citi Private Bank, told the publication his employer has increased the dollar value of its loans to law firms by 25 percent. At the same time, it has seen an increase in the number of “classified” law firm loans—those loans that are issued according to bank lending standards but later experience repayment problems or other issues.
Lisa Smith, vice president at Hildebrandt International, said some law firms are so worried about access to cash that they are tapping their credit lines and holding the cash in reserve.
A study by DiPietro found that revenue growth and demand for legal services is the weakest it has been for the last seven years. As a result, profits per equity partner dropped 9.1 percent in the year’s first six months.
Smith expects revenues to be down 5 percent to 10 percent for the year.
Additional coverage, all from ABAJournal.com:
“Banks Scrutinize BigLaw Borrowing”
“Some Law Firms Step Up Collection Efforts”
“Will 2008 Be Law Firms’ Worst Year Since Early 1990s?”
“Credit Crunch is Limiting Partner Draws”
