With the latest inflation data just released, economic conditions are front of mind for most Australians and it’s no surprise that consumer sentiment and business confidence indices are declining. However the SME lending market remains strong and law firms can benefit from stable credit providers.
Economic Environment
It’s more than a decade since the GFC and we still haven’t had an economic cycle we could define as “normal” by our old definition. Despite two years of pandemic conditions, the predicted level of downturn did not happen thanks to record government support and low interest rates. Post-pandemic it’s a different story and volatility in financial markets continues into FY23.
The RBA is determined to take some heat out of the market, to rein in inflation and bring it back to its target of 2-3%. So they’ve pulled the trigger on their key response mechanism and started increasing the cash rate. While we know there are more rises to come, economists vary in their predictions but all are hoping the RBA can achieve a soft landing.
While banks have moved into this cycle with a greater ability to withstand an external shock than the GFC (thanks to core Tier 1 capital ratios above the 10.5% APRA benchmark) they tend to tighten their lending and credit requirements. This can be a challenging environment for businesses seeking to raise capital, particularly for those with a more complex profile.
Demand for legal finance
Personal Injuries law firms meet the definition of a complex profile – average debtor days of 9 months and the biggest number on the balance sheet is work in progress which can be difficult to value and rely on. Specialist funders such as Providior have filled this gap for a number of years. We understand the complexities of personal injuries matters and have products tailored to meet law firm’s requirements.
The current economic conditions – tight labour market, rising wages, rising prices – all put pressure on cashflow, particularly if firms are working on matters with fixed fee costs agreements signed before this inflationary period.
Some law firms may be considering finance for the first time. For others, their finance strategy is already in place. Our client base has increased by over 40% in the last 12 months and the majority of clients instinctively know good finance strategy underpins their growth. It means redirecting working capital towards revenue-generating expenditure such as staff and marketing. It means being able to redirect admin time focusing on cash flow to more strategic and productive time, which grows the business.
The demand for funding also reflects confidence that the market will settle on ‘new normal’ trading conditions. The good operators are managing current conditions while staying focused on the future.
Did you know?
- We’ve been funding law firms since 2013
- Providior provides disbursement and working capital funding to law firms to support healthy balance sheets
- We can reimburse law firms for self-funded disbursements – Preserving capital by not using it to fund client disbursements can improve the ability to either grow or maintain the status quo
- The most common use of our working capital funding includes:
- hiring a new staff member
- finding new clients
- opening a new office
- brand refresh and marketing campaigns.
*This article contains general information only and does not consider the circumstances of any individual firm or person.
