FUNDING: practices need funds for mergers and to cushion blow of economic gloom

City analysts have expressed concern over survey results revealing that more than a third of law firms are looking to borrow from banks in the coming year.

Some 37% of firms expect to source additional funding over the next 12 months, with 59% of these expecting to take out a bank loan, and 46% considering a short-term overdraft facility, according to a recent survey by senior management association NetworkMP.

Tony Williams, principal at Jomati consultants, said he would have expected nearer a quarter to be looking for additional funding, while Jeremy Black, associate partner in the professional practices group at business advisory firm Deloitte, said it was ‘quite a high proportion’.

Williams said: ‘I would have hoped that firms were looking to tighten up their finances rather than run out to the banks’. He said he expected firms to use additional funds either to finance a merger, or to cushion the blow of the economic slowdown – and suggested banks would be far happier to lend to firms in the former scenario than in the latter.

Colin Ives, a partner in BDO Stoy Hayward’s professional services practice, said law firms should prepare for banks getting even tougher with their lending over the coming months. He said the apparent desire to borrow was ‘rather worrying’.

The report also found that 43% of law firms expected to be involved in a merger over the next 12 months and that 68% of firms had been in discussions regarding a merger in the last 12 months. Williams said the legal industry could witness more than 100 firms merging in England over the next year.

The Leadership Litmus study, produced by NetworkMP and sponsored by BDO Stoy Hayward and Jomati Consultants, quizzed business heads at 57 law firms between March and May this year.