In recent times, legal funding has emerged as a sustainable financing option for plaintiffs that are involved in cases that deal with lawsuits. Additionally, attorneys that represent them have also found it beneficial by being hired on a contingency fee basis.
Legal funding is referred to in many different ways. Some use these terms interchangeably so it can be a bit confusing. It may also be referred to as lawsuit settlement funding, post-settlement funding, litigation funding, third-party financing, pre-settlement financing, lawsuit loans or litigation finance. But generally speaking, all of the given terms mean essentially the same.
Now let’s discuss a bit further how Legal Funding can benefit Attorneys and Plaintiffs and allow them to get regular cash flow.
What is Legal Funding?
Legal Funding is a process that allows plaintiffs and law firms to finance litigations or other legal expenses by using a third-party funding company. This lawsuit cash advance is highly effective for people to source funds they need to fight a case without affecting their quality of life. The finance companies involved will provide funding to their clients in advance in exchange for a portion of the award, settlement, legal fee, etc.
These transactions are non-recourse, meaning that if the case is lost the financier is not allowed to pursue the client’s other assets.
It is Not a Loan
The main thing that one needs to understand is that Legal Funding is not a loan. It is an advance. So for example, if an attorney, who is working on a contingency basis fee, does not win the case they are not responsible for repayment that has been provided by the funding company.
Since the only way these firms are getting paid is with a favourable outcome, legal funding advances are not considered as loans. Instead, they are viewed as non-recourse transactions.
Legal Funding is More Expensive
Since these are non-recourse transactions, in certain cases companies are not able to recoup their investment. To protect themselves from losing money, legal funding is more expensive than some usual financing options like bank loans, low-rate credit cards or credit loans.
That is why you should make sure that you hire an attorney that works with legal funding firms. This could make the situation cheaper or more cost-effective for both parties. Mr Digiaimo from Baker Street Funding explains that this does not have to be your primary solution in acquiring funds. But it is a favourable one if a person is don on their luck and needs financial aid.
Other Forms of Acquiring Finance
There are other cheaper forms of acquiring finance that people look to before seeking the aid of legal funding loans. Bank loans and cash flow solutions are popular ways to acquire the finance needed. However, they are not as favourable as you might think.
Banks will demand collateral usually in the form of non-liquid assets. Thus if the applicant is unable to pay back the bank will simply recoup their investment by selling off the collateral.
Legal Funding presents a good and favourable way for both plaintiffs and attorneys to get the finance they need. Waiting for the case to be finished and a settlement made can last for a long time. Sometimes even months. During that time a person is going to need some kind of financial support to get by.
On the other hand, attorneys that are working on these types of cases should not worry if they lose the case. They still need to try and win it as the reward will be greater, but even if they lose there is a contingency fee to cover them. Although smaller, it is still there as financial support.