Surviving on borrowed time
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10 April 2014
Whether embarking on an LLB or LPC, starting your articles, buying into a partnership or running your own practice, it is essential for fledgling and established lawyers and solicitors to be able to rely on sensible and constructive financial support throughout their careers.
With the erosion of the student grant, it has become essential that students commencing their LLB have, from the outset of their course, considered how they will survive financially.
Most high street banks now offer student accounts with a variety of interest-free overdraft limits. While these offer a helpful cushion, students should bear in mind that the money is borrowed and will need to be paid back.
It may be prudent to impose your own restrictions and not be tempted by the highest overdraft ceiling on offer. Some of the student accounts will even allow students to carry their interest free period up to 12 months after graduation.
Managing scarce resources at an early stage may seem elementary for many young hopeful solicitors but proving to your bank manager that you are able to do so effectively will reflect on how a bank judges you when requesting an extension or increase to an overdraft facility.
It is arduous enough having to face a further year of studying for the difficult, and often gruelling, LPC without the extra complication of balancing limited finances. While running up an overdraft can afford a temporary respite, in the long term it could prove expensive.
One of the ways in which law students can fund their studies is through loan schemes designed to help students through their exams and into their first job.
The Royal Bank of Scotland offers a loan which is tailored to meet individual needs and offers borrowing of up to £10,000 with preferential interest rates and a pay back period of up to seven years. No repayments are required during the first year of the loan, allowing a sensible gap for finding work. During the second and third years only the interest has to be paid: it is not until the fourth year onwards that both capital and interest repayments come into force.
Running your own personal banking during your time as a student is only one element of financial management. Many solicitors will manage clients accounts and help run their own practice. Fundamental to a law firm's reputation is its ability to derive maximum benefit for client funds in its care.
One of the ways to gain the best interest rates for client and practice funds is by 'pooling' resources into one account. Banks can provide a range of alternatives such as deposit accounts for a particular client's funds and detailed transaction information.
For larger funds, money market accounts are available, earning money market rates when deposited overnight or longer. Instant access and a choice of fixed or notice periods are available too. Terms will be tailored to suit your client or practice needs. Access to money market rates, no matter how short the period of deposit, is an excellent way of tapping into the most attractive interest rates when you have large surplus cash deposits.
Funds that belong to your practice obviously need to earn good interest rates but, at the same time, need to be readily available for withdrawal when required.
In any practice, success requires the right financial support at the right moment. There are many occasions when an injection of capital can help to realise ambitions for your practice. The practice may be expanding and require new equipment or new premises.
As an individual, you may wish to borrow in order to buy into or increase your share in a partnership. There are many borrowing options available with flexible terms - as no two requirements are exactly the same, the lender will package its loans to suit individual circumstances. This could mean spreading the repayments over 25 years.
Managing finances, whether your own or those of your future clients or firm, requires discipline and foresight but why make it more difficult than it need be. Working alongside your bank and developing a flexible financial solution to suit your individual or practice's requirements could just be the type of partnership well worth starting early.