Questions for your Lawsuit Financing Company

Lawsuit financing involves a person who has a pending lawsuit seeking money from a third party in order to finance the continuing litigation, to pay personal expenses while the litigation continues, or both. The third party evaluates the lawsuit and likely recovery and, when recovery is reasonably certain, advances money to the plaintiff or plaintiff's lawyer to be repaid out of any eventual settlement or verdict.

While many people think of lawsuit financing as a form of loan, such funding is not ordinarily in the form of a loan. Instead, it is characterized as an advance, investment, or venture capital. The purpose of that characterization is to avoid state laws against charging excessive interest.

While such an advance will be non-recourse in nature, meaning that the lawsuit financing company can only recover from the plaintiff's share of any settlement or verdict, and the finance company risks a loss if the ultimate verdict is in favor of the defendant, or if a verdict or settlement is too small to replay the advance, the high cost of non-recourse lawsuit financing must be considered when evaluating your funding options.

Loans vs. Lawsuit Funding

If you are interested in a true loan as opposed to non-recourse pre-settlement funding, you should make that clear to any financing company you contact. However, you are most likely to obtain an actual loan from a traditional lender, based upon your assets and income. Most lawsuit financing companies will only offer non-recourse funding options.

What Are The Terms For Repayment?

If you obtain a traditional loan, you will be obligated to repay the loan according to its terms, usually by making a monthly payment. However, if you instead obtain non-recourse funding you will be expected to repay the lawsuit financing company out of any ultimate verdict or settlement.

By the nature of this type of funding, the financing company will not make any claim beyond the plaintiff's share of any settlement or verdict.

Different companies will offer litigation financing on different terms or for different fees. You should be clear from the outset what those fees will be, and how they will be calculated. Common terms include:

  • Flat Fee: When lawsuit funding is offered on a flat fee basis, the plaintiff and the financing company agree at the outset what amount will be repaid from the verdict or settlement.

  • Recurring Fee: Some lawsuit financing companies charge a recurring fee, usually monthly in nature, based upon the amount of the funds advanced to the plaintiff. In some cases the fee may be as high as 15% per month.

Consider All Funding Options

A person considering non-recourse funding should not hesitate to ask the company if they offer more than one funding option. For example, if a plaintiff expects a lawsuit to settle quickly it may be cheaper to obtain lawsuit funding even at a significant monthly fee, but if litigation may be protracted even a reasonable monthly fee may exceed the amount of a possible flat fee arrangement.

Once you know what options are available, whether from any particular lawsuit financing company or from a variety of companies you have contacted, you can discuss your options with your lawyer. Your lawyer will help you try to pick the financing package that will best suit your needs and circumstances.

The lawsuit financing company may need to speak to your lawyer about your case before it can make a firm offer.

Negotiate for the Best Deal

When seeking lawsuit funding you should comparison shop.

  • When contact lawsuit financing companies, ask them if they will revisit their funding offers if their competitors offer a better package.
  • You can also use any offers you have received as a starting point in negotiating with other funding companies.
Copyright © 2004 Aaron Larson, All rights reserved. No portion of this article may be reproduced without the express written permission of the copyright holder. If you use a quotation, excerpt or paraphrase of this article, except as otherwise authorized in writing by the author of the article you must cite this article as a source for your work and include a link back to the original article from any online materials that incorporate or are derived from the content of this article.

This article was last reviewed or amended on Apr 13, 2018.