MTVA Spotlight

We talked to Jeff Huff, President and founder of American Law Firm Capital (ALFC), a pioneer in the law firm lending industry, to learn what’s happening in non-traditional funding, how it works, and how this company differentiates itself in a growing sector.

By: Farrin Holland (MTVA Membership Director)

What’s new in law firm financing?

MTVA:  Jeff, ALFC has been serving law firms for well over twenty years. What new is happening in the legal niche of financing?

JH: There is quite a lot happening. When we started serving trial lawyers 24 years ago, the concept of a non-banking entity financing law firms was met with much skepticism. Today, most firms and especially mass tort law firms that are scaling up use several new sources of non-traditional capital.

MTVA: Could you give me a few examples?

JH: Today, the most known source of capital is hedge funds. Many new funds have entered the market over the last three to five years. Other sources can include private equity, family offices, and now non-lawyers as equity owners in law firms. We predict the non-lawyer model will change the landscape of legal services, eventually leading to law firms as publicly traded entities.

American Law Firm Capital disrupting traditional lending again

MTVA: I understand you originally disrupted the industry by being one of the first to fund in the legal industry. You then eliminated personal guarantees in most loans and recently introduced insurance that covers a law firm’s loan principal. What are you up to now?

JH: Yes, we’re disrupting again with our three new funding option models developed to place the firm in the best financial product for them based on their specific firm attributes and goals.  We believe there are a few good, knowledgeable lenders out there, but they are all beholden to their “one” fund or lending model. Fortunately, due to our success, 20+ years of data, seasoned staff, and proven underwriting methodology, our funding partners and investors agree that by offering multiple financing options to law firms, we can create better economics for the firm and long-term relationships.

MTVA: What options do you provide for law firm financing?

JH: American Law Firm Capital “(ALFC”) has three funding options, two debt and one equity:

1. Bank Loans - In loans of $10MM or less, we normally prepare a loan package for law firms for one of our banking partners that have adopted our underwriting methodology. This allows firms to receive capital they couldn’t get before from larger facilities at single-digit interest rates, a huge savings to the firm. These loans may or may not include personal guarantees.
2. Hedge Fund – In loans from $10MM to $100MM or more, these are placed with our fund, as they are beyond banks’ lending capacity and expertise to underwrite these more sophisticated loans. These loans normally do not have personal guarantees and can cover a wide array of legal niches, such as mass torts, class actions, personal injury, and other areas of law.
3. Arizona ABS Law Firm – This is our equity model that we’re very excited about. It allows us to invest as co-counsel (equity v. debt) and beyond most firms’ capacity to borrow. There are many advantages to this model ultimately serving more injured parties who otherwise may have gone without legal representation.

What, exactly, is collateral?

MTVA: Jeff, I hear the word “collateral” often used as the main driver for law firm loans. What is collateral—is that how firms qualify for loans?

JH: Collateral refers to the cases that the firm has retained and, yes, it is a major driver of any financial transaction. The type of cases, the maturity of those cases, cases that have qualifying criteria to be settled, and the overall diversification of cases in a firm’s portfolio are all important for the firm to receive capital. Of course, there are many other factors, including but not limited to the firm’s team of lawyers, debt and leverage on the firm, personal character, and the firm’s track record of executing. 

MTVA: Anything you’d like to say in closing?

JH: We feel very fortunate to have served thousands of lawyers over the years. Our team is very passionate about helping plaintiff firms and we enjoy contributing as a valuable partner to their success.