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Law firms have historically been viewed by banks as relatively immune to a downturn in the economy. However, following Halliwells’ collapse, banks no longer take a view that lending to law firms is low risk. Many banks will now not provide partner capital loans where they are also the primary lender to the firm and now look to take debentures as security, which was very rare pre-Halliwells. Banks are also increasing their margins on funding to law firms to reflect their concerns that lending to law firms carries a higher risk post-Halliwells. The only alternative for many firms is to ask partners for increased capital contributions.

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