Clio
has
officially
launched
Clio
Capital,
a
financing
program
designed
exclusively
for
law
firms
that
use
the
company’s
practice
management
platform.
The
product,
which
went
live
Feb.
26,
provides
eligible
law
firms
with
pre-qualified
access
to
working
capital
through
a
streamlined
application
process
directly
within
the
Clio
platform,
bypassing
the
paperwork-heavy,
rejection-prone
process
that
has
historically
made
borrowing
difficult
for
small
legal
practices.
In
an
interview
with
LawSites,
A.J.
Axelrod,
Clio’s
vice
president
of
payments
and
financial
services,
said
the
program
had
disbursed
well
over
$1
million
in
loans
within
its
first
week
of
full
operation,
with
more
than
35
loans
issued
ranging
from
$1,500
at
the
low
end
to
approximately
$218,000–$230,000
at
the
high
end. While
still
in
its
early
days,
the
program’s
average
accepted
loan
amount
so
far
is
approximately
$37,000.
In
total,
as
of
launch,
roughly
$253
million
in
pre-qualified
offers
had
been
extended
across
more
than
11,000
Clio
customers
—
though
not
all
of
those
customers
are
expected
to
accept.
Clio
Capital
loans
are
issued
by
Celtic
Bank
and
powered
by
Stripe.
The
program
is
available
now
to
eligible
Clio
Payments
customers
in
the
United
States.
A
Market
Underserved
by
Traditional
Lenders
Axelrod
said
the
motivation
for
Clio
Capital
was
the
structural
market
failure
that
has
affected
small
businesses
—
including
small
law
firms
—
for
decades.
The
traditional
loan
process
is
time-consuming,
manual
and
often
discouraging,
requiring
applicants
to
gather
financial
documents,
visit
a
bank,
complete
extensive
applications,
and
frequently
face
rejection
even
after
all
that.
Beyond
the
friction,
Axelrod
said,
banks
generally
have
little
economic
incentive
to
lend
small
amounts.
As
a
result,
firms
that
need
$1,500
or
$5,000
may
be
entirely
shut
out
of
the
traditional
lending
market
—
and
may
instead
resort
to
carrying
revolving
credit
card
balances
at
interest
rates
of
20–24%
or
higher.
Law
firms
also
face
a
challenge
specific
to
their
industry.
They
typically
lack
the
tangible
assets
—
equipment,
inventory,
real
estate
—
that
traditional
lenders
use
as
collateral.
Recent
regulatory
changes
to
SBA
lending
rules
have
intensified
these
pressures,
sometimes
forcing
partners
to
pledge
personal
assets
such
as
their
homes
to
secure
business
funding.
The
time
burden
also
falls
disproportionately
on
lawyers.
Every
hour
spent
packaging
financials
for
a
bank
loan
is
an
hour
not
spent
serving
clients
and
generating
revenue.
For
many
small
firm
owners,
the
calculus
simply
does
not
favor
pursuing
a
traditional
loan.
Pre-Qualification
Based
on
Payments
Data
What
is
particularly
interesting
about
Clio
Capital
is
that
it
uses
data
that
Clio
already
has
about
its
customers
to
underwrite
loans
prospectively
rather
than
reactively.
Because
Clio,
through
its
Clio
Payments
produce,
processes
payments
for
tens
of
thousands
of
law
firms,
it
has
real-time
visibility
into
billing
frequency,
payment
volumes
and
related
financial
activity.
Clio
Capital
uses
that
data
for
a
pre-qualification
process
that
evaluates
all
eligible
Clio
Payments
customers
on
a
rolling
basis.
Firms
that
meet
eligibility
criteria
receive
a
pre-qualified
offer
directly
within
Clio
Manage,
the
company’s
practice
management
application.
The
offer
includes
a
loan
amount
and
interest
rate,
and
firms
can
use
a
slider
to
adjust
the
amount
they
want
to
borrow.
Because
customers
are
pre-qualified
before
they
initiate
an
application,
Clio
projects
an
approximately
95%
approval
rate
—
meaning
only
about
1
in
20
customers
who
click
through
to
accept
an
offer
will
be
declined.
A
secondary
layer
of
underwriting
supplements
the
payments
data,
Axelrod
said.
Prospective
borrowers
are
asked
to
connect
their
bank
account
(with
their
consent)
so
that
additional
signals
can
be
reviewed,
such
as
whether
the
firm
has
an
active
bankruptcy
or
a
pattern
of
returned
payments.
Axelrod
described
this
step
as
designed
to
be
as
frictionless
as
possible,
and
said
it
accounts
for
most
of
the
cases
in
which
pre-qualified
customers
are
ultimately
not
approved.
Completing
the
application
typically
takes
only
a
few
minutes.
The
application
then
enters
a
brief
review
queue
—
usually
resolved
within
a
day
—
after
which
funds
are
transferred
via
ACH.
Clio
says
most
borrowers
receive
funds
in
their
bank
accounts
within
approximately
48
hours.
That
pre-qualification
process
means
that
eligibility
is
based
on
a
firm’s
business
performance
within
the
Clio
ecosystem
—
not
on
the
personal
credit
scores
of
the
firm’s
partners.
Borrowers
do
not
need
to
pledge
personal
assets
as
collateral.
Loan
Structure
and
Pricing
Clio
Capital
loans
are
structured
as
traditional
installment
loans,
meaning
they
have
a
fixed
repayment
schedule
with
a
defined
term
and
a
fixed
total
cost.
There
is
no
compound
interest,
and
Clio
says
there
are
no
origination
fees,
data
processing
fees
or
other
add-on
charges.
Axelrod
said
the
effective
interest
rate
Clio
has
been
seeing
runs
around
15%,
which
he
described
as
meaningfully
better
than
typical
credit
card
rates
(roughly
22–24%)
and
competitive
with
what
a
borrower
might
expect
from
a
quality
small-business
loan.
He
noted
that
some
alternative
lenders
charge
rates
of
30–40%
or
obscure
their
true
cost
with
fees,
neither
of
which
applies
to
Clio
Capital.
Each
borrower’s
offer
is
customized
based
on
their
individual
payment
history
and
risk
profile,
so
rates
and
available
loan
amounts
will
vary.
Repayment
is
handled
through
automatic
weekly
debits
from
the
borrower’s
bank
account,
which
Clio
describes
as
designed
to
keep
cash
flow
predictable
without
requiring
manual
management.
If
borrowers
run
into
difficulty
making
repayments,
Axelrod
said,
Clio
intends
to
work
with
them,
potentially
through
payment
relief
or
program
modifications,
rather
than
leaving
them
on
their
own
to
navigate
the
situation.
Partnering
with
Celtic
Bank
and
Stripe
Clio
is
not
itself
a
lender,
bank
or
licensed
depository
institution,
and
it
does
not
hold
the
loans
on
its
balance
sheet.
Instead,
the
program
operates
through
a
partnership
structure
that
Axelrod
described
as
drawing
on
the
respective
strengths
of
each
participant.
Clio
contributes
what
Axelrod
characterized
as
its
two
most
valuable
assets
for
a
lending
program:
distribution
(direct
access
to
a
large,
engaged
base
of
law
firm
customers)
and
data
(detailed,
real-time
payment
and
billing
information
that
can
be
used
to
underwrite
credit
decisions).
Celtic
Bank,
a
Utah-chartered
industrial
bank,
provides
the
regulatory
standing
and
cost
of
capital
required
to
issue
loans
at
competitive
rates.
Stripe
serves
as
the
payments
infrastructure
underpinning
the
program.
Axelrod
noted
that
navigating
the
regulatory
landscape
for
lending
—
which
involves
both
federal
rules
and
state-by-state
licensing
requirements
—
is
a
significant
undertaking
that
Clio
could
not
efficiently
manage
on
its
own.
The
bank
partnership
allows
Clio
to
offer
a
compliant
product
without
having
to
build
that
regulatory
infrastructure
internally.
Privacy
and
Data
Use
Addressing
potential
privacy
concerns,
Axelrod
said
that
Clio
discloses
throughout
the
application
process
exactly
how
customer
data
can
and
cannot
be
used.
The
program
operates
under
what
he
described
as
a
data
wrapper,
meaning
that
the
payments
data
and
lending/repayment
information
collected
as
part
of
the
program
can
only
be
used
for
purposes
within
that
program
and
cannot
be
repurposed
elsewhere
within
Clio’s
platform
or
operations.
For
example,
if
a
borrower
misses
payments
on
a
Clio
Capital
loan,
Clio
cannot
use
that
information
to
affect
the
customer’s
standing
with
respect
to
other
Clio
products.
Axelrod
said
Clio
takes
compliance
across
all
dimensions
of
the
program,
not
just
privacy,
“incredibly
seriously,”
and
he
said
that
the
company
chose
best-in-class
partners
in
part
because
of
their
compliance
capabilities.
Who
Is
Eligible
Currently,
eligibility
for
Clio
Capital
requires
that
a
law
firm
be
an
active
Clio
Payments
customer.
Payment
processing
data
is
what
drives
the
pre-qualification
engine,
so
firms
that
do
not
use
Clio
Payments
do
not
yet
qualify.
Axelrod
said
Clio
hopes
to
expand
eligibility
in
the
future
by
incorporating
additional
data
sources,
so
that
firms
using
Clio
for
practice
management
but
not
payments
might
eventually
qualify.
He
noted
that
the
program
is
starting
with
payments
data
because
that
data
provides
a
high-confidence,
real-time
signal
about
business
health
that
enables
favorable
underwriting
terms.
The
program
is
currently
available
only
in
the
United
States.
Axelrod
said
the
company
intends
to
explore
international
expansion,
but
emphasized
that
regulatory
complexity
makes
it
important
not
to
rush
into
markets
without
the
right
partners
in
place.
How
Firms
Can
Use
the
Funds
Clio
does
not
restrict
how
borrowers
use
their
loan
proceeds.
The
application
does
not
require
firms
to
state
a
specific
use
of
funds,
and
a
firm’s
stated
purpose
does
not
affect
whether
it
is
approved.
The
early
signals
suggest
a
broad
range
of
uses,
Axelrod
said.
Cash
flow
management
is
a
common
motivation
—
small
firms
with
irregular
revenue
still
face
predictable
obligations
such
as
payroll,
rent
and
operating
expenses.
Beyond
that,
firms
are
using
capital
to
invest
in
growth:
new
technology,
marketing,
hiring
and
other
initiatives
that
require
upfront
spending.
Axelrod
also
foresees
that
data
on
what
types
of
firms
apply
for
loans
and
how
they
use
them
could
eventually
yield
meaningful
industry-level
insights.
Axelrod
also
foresees
a
possible
positive
feedback
loop
in
the
program’s
design.
He
expects
that
borrowers
who
successfully
repay
a
loan
will
be
quickly
re-approved
for
new
financing
—
and
potentially
eligible
for
larger
amounts
at
lower
rates.
Successful
repayment
is
a
strong
credit
signal,
and
Clio
intends
to
use
it
to
offer
progressively
better
terms
to
reliable
borrowers.
The
goal,
as
he
described
it,
is
to
create
a
cycle
in
which
firms
that
gain
access
to
capital,
deploy
it
effectively,
grow
their
practice,
and
repay
their
loans
are
progressively
rewarded
with
cheaper,
more
accessible
financing.
Broader
Fintech
Expansion
Clio
Capital
is
not
the
company’s
first
foray
into
financial
services.
The
company
already
offers
Clio
Payments,
a
payment
processing
product,
as
well
as
a
buy-now,
pay-later
feature
for
legal
services.
Axelrod
said
that
Clio
Capital
represents
an
expansion
of
that
broader
fintech
strategy,
and
that
additional
financial
products
are
under
consideration.
He
noted
that
different
firms
have
different
financing
needs.
A
revolving
line
of
credit,
a
multi-draw
facility,
or
a
merchant
cash
advance
might
serve
some
customers
better
than
an
installment
loan.
Clio
intends
to
listen
to
customer
signals
and
develop
products
accordingly.
The
current
installment
loan
was
chosen
as
a
starting
point
because
it
is
simple,
transparent
and
broadly
applicable.