Law firm lending in private credit

As many Westmount clients know, private credit is a broad category encompassing a wide range of specialized niches. Among them is law firm lending, an asset class that is underpinned by the sheer scale and persistence of the U.S. legal system: more than 40 million civil cases are filed in state courts each year.¹ This constant flow of litigation creates a large, durable, and often-overlooked demand for capital.

At its core, law firm lending exists to bridge a structural mismatch. For plaintiff-side law firms, cases are often expensive to prosecute and slow to resolve. Firms usually fund the associated costs upfront, often for years, before realizing any revenue. Firms may also be targeting growth and need capital to expand headcounts or build out operational capacity.

Regardless of the end goal, there is a clear structural need for capital that traditional lenders are often unwilling or unable to meet, which has opened the door for private credit investors to step through.

From case-level risk to portfolio-level income

Importantly, this is not the same as litigation finance, where investors bankroll individual cases in exchange for a portion of the final settlement. In law firm lending, capital is treated more like a business loan, except that the business derives its revenue from billings, fees, contingencies, retainers, and the like rather than from the sale of tangible products.

Under this structure, idiosyncratic risk is transformed into a more predictable, income-generating strategy. By lending against a broad base of legal matters and structuring loans with conservative terms, investors can target consistent, contractual cash flows rather than bet on the binary outcome of any single case.

The investment case for law firm lending

For investors, the appeal of law firm lending lies in its ability to combine attractive income potential with meaningful structural protections. The specialized nature of the asset class and limited participation from traditional lenders allows private investors to command premium yields, often in the double-digit range.

At the same time, loans are typically structured with a strong emphasis on downside mitigation. They are generally secured, sit senior in the capital stack, and are often supported by partner guarantees and covenants that restrict additional borrowing.

Law firm lending can also offer valuable diversification benefits within a broader portfolio, which is the approach we take at Westmount. Returns are driven primarily by cash flows and largely uncorrelated to broader macroeconomic factors like employment trends, GDP growth, or interest rate movements.

Importantly, the sheer volume of litigation activity provides a deep and renewable opportunity set, enabling managers to diversify exposure across firms, docket types, and jurisdictions—further enhancing the stability and scalability of the strategy.

For socially conscious investors, there is also an ESG angle that may add further appeal. By providing capital to law firms pursuing meritorious claims, law firm lending can help expand access to justice for individuals and groups who may otherwise lack the resources to pursue legal recourse.

An inefficient and overlooked market

Despite these attractive characteristics, law firm lending remains an underutilized niche due to its esoteric collateral base. Banks and other traditional lenders, for example, often lack the legal expertise and underwriting frameworks required to evaluate these opportunities effectively. As a result, many law firms remain underserved by conventional financing channels, even those with strong track records and high-value case portfolios.

This inefficiency creates a favorable dynamic for specialized private credit managers who have the experience and relationships needed to source, diligence, and structure these loans. In many cases, the ability to navigate legal complexity—not just provide capital—is what drives excess return potential.

Accessing the opportunity

At Westmount, we focus on identifying specialized managers and strategies that can translate niche market inefficiencies into compelling investment opportunities for our clients. Through our private investments platform, qualified investors can access law firm lending strategies designed to emphasize income generation, downside protection, and portfolio diversification.

“Capital solutions for lower middle market law firms remain an underserved segment,” said Dimitri Krikelas, Chief Investment Officer for Private Markets at Westmount. “As a result, the space has demonstrated consistent performance for investors, supported by strong supply-demand dynamics and structural protections.”

While no single strategy provides a standalone solution, law firm lending can serve as a valuable complement to a broader private credit allocation, particularly for investors seeking differentiated sources of income and reduced correlation to traditional markets.

Next steps

Private market assets typically carry high investment minimums and require of investors the right set of relationships, sourcing and due diligence capabilities. To learn more about how we access this space for our clients, call us at 310-556-2502 or visit westmount.com/alternatives.