Many law firms using non-bank lenders are at risk of breaching Solicitors Regulation Authority (SRA) rules because they don’t read the small print, a specialist finance firm has warned.
According to financiers SpectraLegal, which has reviewed the arrangements of more than 100 law firms in the past year, solicitors need to be more forensic in their approach when agreeing the terms. It cites examples of firms that use costs account funding putting themselves at risk by assigning their receivables to a lender without first seeking the approval of their bank.
Matthew Gwynne, client relations director at SpectraLegal, said: “The danger here is that if permission is not obtained, then the firm will breach its covenants and the bank will be well within its rights to withdraw its lending arrangements. In the case of overdrafts, this can be done with immediate effect, making the debt repayable at once.” Other errors include not recording damages estimates and failing to recognise the impact of inactive files.
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