Recent data shows that litigation funding grows increasingly popular as Americans face expensive litigation over extended periods of time. More and more lenders provide specialty funding for lawsuits in exchange for a part of what the client recovers. The loans are non-recourse, which means clients don’t have to repay them if they don’t win their case.
Understanding the Difference Between Lawsuit Loans and Legal Funding
From the client’s point of view, legal funding vs. lawsuit loans is almost a non-starter because legal funding provides many advantages over lawsuit loans. Lawsuit loans are exactly like any other type of loan. You borrow money from a bank or other traditional lender. Applicants must qualify with a good credit score, and the loans have to be repaid regardless of whether the client wins the case and receives a settlement or award.
Litigation funding, on the other hand, includes non-bank financial support for which you can qualify without a high credit score, co-signer, or even a regular job. The strategy provides investors the opportunity for high returns, but there is a certain amount of risk, as the loans are non-refundable if the borrower loses the case.
That’s why most companies that offer legal funding rely heavily on the details of your case, which they learn from your lawyer and the likelihood that you will win. For further reference, check out the link to learn more about legal funding vs lawsuit loans.
How Does Litigation Funding Work?
This specialty type of funding is available to any litigant who has been injured and expects to recover damages. Different companies might have varying degrees of legal standards that must be met to approve the funding, but it is one of the best options for severely injured litigants that need quick cash.
The benefits of this type of legal funding include:
- Clients can hold out for larger settlements.
- Litigants don’t need to worry about repaying the loan unless their attorneys win the case.
- Clients can use the funds to substitute for income from working, paying legal bills, etc.
- Investors use their expertise to position you in pretrial motions to win larger awards.
- Typical lawsuits that qualify for litigation funding include personal injury cases, medical malpractice lawsuits, whistleblower, worker-related injuries, FELA claims, motor vehicle injuries, and railroad employee lawsuits.
- Lawyers can pursue more complex cases when assured that their expenses will be covered.
- Clients can pursue cases that would be impossible to litigate because of defendants with large legal teams and substantial financial resources to delay the case for months or years.
The legal requirements of clients who use litigation funding typically include certifying that you haven’t sold any other interests in the case and that you’re not planning to file for bankruptcy.
Litigants who negotiate a deal must hold a high expectation of success, provide a copy of expected litigation paperwork and living expenses, and willingly risk a part of their projected award or settlement.
The Great Equalizer
Litigation funding has improved settlements tremendously in the United States. The strategy works well for both individuals and small companies that can’t afford extended litigation.
Small companies often face challenges when suing a large company with deep pockets. Small companies can actually unlock a contingent asset. So can private citizens with a strong claim. Usually, the funds are used to pay legal expenses, but funds can also be used to pay rent, utilities, operating costs, expansion costs, and living expenses.
If you don’t qualify for litigation funding on the strength of your case, you can always try to swing a legal loan from a bank or credit union, and many attorneys offer to represent you on a contingency basis.
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With a law degree under his belt and years of experience, Mark Scott set off to make the law more accessible to all. He decided to help people lost in the maze of legal terminology to find their way. Mark writes clear and concise pieces and gives simple advice that is easy to follow. On account of positive feedback from readers, he decided to dedicate more of his time to this goal and became a legal columnist. In his writings, Mark covers a wide array of topics, like how to seek legal counsel, or how to deal with different procedures. Furthermore, he directs his readers toward other trustworthy resources for more in-depth information.
