How Does Litigation Funding Work?

The private practice of law is an increasingly competitive market. Successful firms work hard to attract the brightest talent and grow their client base. Both pursuits require capital, but traditional loan financing for law firms carries risk. Non-recourse litigation funding offers the key to success, allowing firms to secure the financial resources they need to take more interesting cases, acquire legal talent, and grow without the risk.

Litigation Funding: Financial Support and Risk Management for Law Firms

Unlike many other operations, attorneys are often bound by rules or regulations that limit law firm ownership, operation, and funding. Even in jurisdictions where conventional bank loans are permitted, banks don’t use as collateral what may be a firm’s best asset: receivables. As a result, firm partners or shareholders must often become the bank or, at a minimum, personally provide the collateral for the firm’s loan.

But taking out a loan means carrying debt that weighs on the firm’s balance sheet, interest must be paid monthly, and loans must be repaid regardless of the firm’s success. Law firms seeking an alternative, risk-free funding source turn to non-recourse litigation financing.

Who Seeks Litigation Financing?

Traditionally a resource only for plaintiff firms, savvy defense counsel also take advantage of this alternative financing option. In fact, many different contingents leverage this financing mechanism:

  • Plaintiff firms;
  • Defense firms;
  • New firms funding current litigation;
  • Established firms capitalizing complex litigation, operational expenses, or talent acquisition and growth; and
  • Corporate legal departments.

In essence, any firm or legal department may be eligible for litigation financing.

What is the Process for Obtaining Litigation Financing?

As with any form of financing, litigation funding involves the evaluation or underwriting of collateral to determine the risk involved in a particular financing transaction. While collateral in conventional lending is often comprised of physical assets, the collateral source in litigation finance is a lawyer’s own bread and butter: its cases.

The financing process begins when an applicant seeking litigation financing submits basic information on one or more cases it believes likely to result in a favorable settlement or award. A team of legal underwriters knowledgeable in the relevant area of law reviews the information and relevant precedent to determine the chance of success of the case or cases.

When the underwriters’ review confirms that a successful outcome is expected, the financing company offers litigation financing in the form of an advance or line of credit secured by the anticipated proceeds from those cases.

A firm’s obligation to repay the amount financed is limited by the proceeds received in the collateralized cases. As a result, litigation funding provides a no-risk opportunity to finance litigation and even firm operations and growth.

What Kinds of Cases Can Be Used?

Litigation funding is available for any case or portfolio of cases supported by legal precedent as likely to prevail. Common areas of litigation in which financing is available include the following:

Regardless of the type of case collateral, litigation financing begins with contacting a litigating funding company to discuss the options available to you.

If you’re interested in learning more about how litigation financing works, contact Pravati Capital, one of the leading litigation finance companies, by calling 844-772-8284 or by completing our online contact form.