Professional services finance covers the two funding needs specific to firms whose main asset is their people: funding work in progress, which is time worked but not yet billed or paid, and funding the purchase of an equity interest when someone buys into the partnership. Neither is solved by conventional asset-secured lending, because there is very little to secure against.
Why the balance sheet is the problem
A law firm, accounting practice, engineering consultancy or agency typically has some fit-out, some computers, and not much else on the asset side. What it has instead is a pipeline: matters in progress, engagements part-delivered, time recorded but not yet invoiced, and invoices issued but not yet paid.
That is real economic value and it is genuinely difficult to lend against. Unbilled time is not a receivable; it can be written down, disputed, or never billed at all. Lenders assessing a professional firm on its balance sheet see very little, which is why generalist secured lending tends to end with a request for the principals' homes as security.
Work-in-progress lending
WIP lending advances against work performed but not yet billed, effectively bringing forward the cash from work already done. It suits firms where the delay between doing the work and being paid is structural rather than exceptional: litigation running over months, engagements billed on milestones, matters where the fee crystallises only at completion.
Lenders assess the realisation history rather than the raw WIP figure. What proportion of recorded time is actually billed, how quickly, and what proportion of bills are collected in full. A firm with disciplined billing and a consistent realisation rate can borrow against WIP on reasonable terms. A firm whose WIP has been growing for two years without corresponding billings is showing the lender a problem rather than an asset.
Where the work has been invoiced and the wait is simply the client paying, the cleaner product is ordinary invoice finance, which is cheaper and more widely available than WIP facilities.
Firms operating on contingency or conditional fee arrangements are a specialised case, funded by a small number of lenders who understand the risk that a matter may produce no fee at all.
Partnership buy-in funding
When a senior employee buys into a partnership or acquires equity in an incorporated practice, they usually need to fund the purchase personally. The asset they are buying is a share of a business with few hard assets, so a conventional secured loan against it is difficult.
Lenders who do this look at the firm's financial performance, the drawings or distributions the incoming partner will receive, the terms of the partnership or shareholders agreement, and the exit provisions. The last of these matters more than people expect: a lender wants to know what happens to the equity, and to their loan, if the partner leaves or the arrangement ends.
Repayment is typically structured against future distributions, which means the incoming partner is servicing the loan from the income the equity generates. That works when the firm's earnings are stable and the buy-in was priced sensibly. It works less well when the valuation assumed growth that has not arrived.
The alternative, and often the better one where it is available, is vendor finance from the exiting partner. The seller knows the business, has an interest in a smooth transition, and can usually be more flexible on terms than a lender can. It also keeps the outgoing partner engaged in the handover.
The other facilities worth having
Practices with lumpy income benefit from a standing overdraft or line of credit sized against the trough rather than the average, particularly where partner drawings are regular but fee income is not. Line of credit vs overdraft vs term loan covers which structure fits which pattern.
Fit-out and technology are ordinary asset finance, though the fit-out portion carries the same difficulty it does in any leased premises: it cannot be repossessed, so it is usually funded unsecured against the firm's covenant.
And professional indemnity premiums, which for some disciplines are a substantial annual cost, can be funded through premium funding rather than paid as a lump sum, smoothing an otherwise awkward annual outflow.
What to have ready
Financial statements, an aged WIP and debtor report, realisation and lock-up statistics if you track them, the partnership or shareholders agreement for a buy-in, and a clear picture of fee income by client so the lender can assess concentration. Firms that can produce these quickly are assessed differently from firms that cannot.
Where to from here
We arrange WIP facilities, buy-in funding and working capital for professional firms across our whole lender panel, including the funders who understand a lock-up figure without needing it explained. Our professional services pages cover the sector in full. There are no fees to clients; the lender pays us when the finance settles. Book a 20-minute brief.
Want to talk specifics?
Twenty-minute brief, no obligation.
A real broker on the other end of the line. No fees to clients.
