What Lenders Look For

Asking for a loan is one thing. Persuading someone to fund your request is quite another. Here are several ways to demonstrate that your firm, or a particular judgment, is a worthy candidate. To be effective, use them all.

-- An overview memo. Prepare a memorandum that describes how the firm tracks income, expenses, and case costs. Make sure to include a description of the firm's case management system.

-- Firm financial statements. Provide detailed statements that cover the firm's current year-to-date financial experience, as well as the past three years. List partner compensation separately so that can also be analyzed.

-- Key documents. Put together a package showing the firm's partnership agreement, malpractice coverage, and life insurance coverage for partners.

-- Net worth. Include a personal net worth statement for each of the firm's partners.

-- Bar status. Provide detailed information about each firm lawyer's bar status, including the State Bar membership number and disciplinary history.

-- Borrower litigation. Provide full details of any litigation in which the firm, or any of its lawyers, has been a party.

-- Pending cases. Develop a list that shows projected fee revenue, case costs, and payment due dates. Provide samples of the fee agreements that pertain to each case.

-- Judgments on appeal. If the financing you seek is tied to a judgment, provide a thorough memorandum discussing the case, the facts, and the applicable law. Be sure to explain the opposing side's position. Any potential investor will ask hard questions and seriously "kick the tires" before reaching a decision. Better to be up front than to force the investor to dig for information.

-- Responsiveness. Even though you've prepared what appears to be a full package of material, the lender will likely have questions. Provide the information requested as quickly as possible. You want to show you can generate timely reports about your firm's financial status and the state of its collateral (pending cases). And remember: Any sign of delay or evasiveness during the underwriting phase is a red flag, signaling future difficulties that might arise should the loan actually be funded. -AZ

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