Bank Loan Terminology
Lawyers sometimes need a monetary helping hand, and that's where a bank loan comes in. Three types of bank loans include a line or credit or revolving line of credit, an equipment term loan, and a term loan.
Line of Credit or Revolving Line of Credit
The amount of the loan is dependent on each bank's perception of the total loan package. Some banks limit a loan to three times the monthly expenses, excluding partner draws.
In the case of a line of credit, the borrower may borrow and repay at will up to the amount of the "line"; the bank usually prefers that the borrower be "clean" or out of debt for at least thirty days to ninety days each year. The line of credit is then reviewed annually and extended, increased, or terminated as circumstances warrant.
In the case of a revolving line of credit, the borrower usually obtains a designated sum of money over a period of time; the revolving line of credit is then converted to a term loan and is repayable over a period of two, three, or five years.
Equipment Term Loan
The amount of the loan will normally be no more than the depreciable life of the equipment, usually three to five years. Some borrowers may be able to obtain loans for a longer period, but this is usually when the equipment being financed is expected to last longer than equipment typically acquired for use by a law firm.
Term Loan
These loans can be as long as seven to ten years for a large law firm and three to five years for a smaller firm. Most such loans involve leasehold improvements and furniture and equipment purchases. Frequently, the term loan is drawn down over a period of six to nine months; the payback period begins within three months of the final draw. The periodic payments may be structured to be equal payments until paid in full, or the loan may provide a balloon payment at the end of the term.
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