April 4, 2019

Is Law Firm Funding Legal?

Many law firms struggle to meet expenses while managing complex and other litigation. Law firm funding is an established option that fills this void.

Lawyers who investigate law firm funding legal requirements find a reliable and safe financing solution for law firms. This type of financing provides capital attorneys can use to alleviate the financial squeeze created by day-to-day operations. And repayment is only required if and when cases pledged as collateral are resolved successfully.

Law Firm Funding: A No-Risk Alternative to Traditional Funding Methods

Any business considering financing looks for the best deal possible, and law firms are no different. However, a unique alternative to traditional financing is available to attorneys: law firm funding. This financing method is a sensible way to fund litigation, operations, and even firm growth using a firm’s key assets: cases.

Options for Financing a Law Firm

Historically, lawyers in private practice have had to bring their own money to the table or seek traditional loans in order to fund litigation, finance operations, or expand practice areas or geography. Either method limits funding options by the measure of the partners’ personal balance sheets and risk tolerance.

Now, attorneys can turn to law firm funding, a risk-free alternative to personal capital contributions and traditional bank loans. Litigation funding offers lawyers the opportunity to leverage the firm’s anticipated fees in one or more cases in return for financing today.

This method of financing gives a firm the financial security to pursue cases to the fullest and even grow the firm despite inconsistent cash flow.

Third Party Funding, but Control Stays with the Firm

In the United States, professional conduct rules generally prohibit non-lawyers from owning an interest in a law firm. The rule was premised on the desire to avoid any possibility that the attorney’s loyalty to clients might be compromised by a duty to a non-lawyer owner.

With litigation funding, control starts and ends with the lawyers and the firm. Law firm litigation companies take no ownership interest in or lien against a firm. An advance or line of credit is secured by anticipated future attorney fees, but the obligation of repayment is triggered only by a successful conclusion to the case or cases pledged. Control of the litigation and ownership of the firm remain with 100% with lawyers.

A Sound Financing Solution for Law Firms

Litigation funding allows lawyers to obtain financing without the usual burden associated with third party lending. Conventional loans appear on the balance sheet, tilting the scale of the firm’s financial health. Litigation funding merely moves anticipated receipts forward in time so the firm and the client can benefit from them now.

Better still, the firm bears no risk with litigation funding, a type of non-recourse funding. In contrast, conventional loans require repayment regardless of the success of the endeavor they have funded.

Law Firm Funding: A Financing Option in Multiple Practice Areas

Law firm funding is a common form of alternative financing for lawyers handling all types of cases. A plaintiff’s firm, defense firm, and corporate legal department enjoy equal opportunity to benefit from litigation funding. Cases in any practice area may be pledged as collateral, including the following:

Informed attorneys are learning how litigation funding works and taking advantage of it for the benefit of their clients.

For more information on law firm funding legal requirements in your jurisdiction, or if you would like more information on litigation funding generally, contact the finance company with more than a decade of experience assisting firms like yours: Pravati Capital. You can reach us by calling 844-772-8284 or by completing our online contact form.


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