Legal funding — or an advance against future receivables from a pending lawsuit — has come to the rescue for both cash-starved clients to resolve and for attorneys who are seeking to grow their businesses.
Although many attorneys and law firms already use legal funding to help cover cash flow while waiting for a lawsuit to resolve, the field is fairly new and not well-known yet. Both clients and attorneys can benefit from legal funding.
Legal funding companies evaluate the likelihood of success in a pending lawsuit and calculate the sum the plaintiff can be expected to receive in damages. They then advance a portion of that future expected compensation, allowing both the plaintiff and their attorneys to receive money now, rather than being forced to wait months — or sometimes years — for the lawsuit to be settled.
Of course, this service comes at a price: legal funding companies take a cut of the lawsuit proceeds (plus fees) at the back end for the benefit of providing money to the client and their attorney upfront. The good news for clients, though, is that the legal funding company accepts the risk of the lawsuit outcome: the litigant is not liable to pay the legal funding companies if they lose the case.
Given that the legal funding company accepts high levels of risk and has to wait a long time to be repaid, the fees they charge can be quite high. The benefits of getting cash now, however, can outweigh the costs, especially if you are cash-strapped and cannot wait for the proceedings to complete.
Let’s now investigate five advantages of legal funding so you can determine if it is right for you.
Attorneys Have Great Benefit
Attorneys take cases on contingency because they want to help a client get compensation for the suffering they’ve received from someone else’s negligence. But litigation is a time-consuming process that takes months or even years to settle or go to trial. Neither the attorney nor the client gets paid until the suit is resolved, and during that time, both client and attorney need funds to continue.
From the attorney’s point of view, lawsuit funding helps clients overcome financial hurdles during the proceedings. While the client waits for their case to resolve, they can become financially weak and find it difficult to manage expenses like food, healthcare, housing, and transportation, especially if they are unable to work as a result of their injuries.
Attorneys are usually prohibited from providing financial assistance to clients, but the proceeds from legal funding are not from the attorney so they can be dispersed to the client for immediate assistance.
The longer the litigation drags on, the greater the client’s financial obligations increase, which can become an enormous burden. Mounting expenses can encourage a client to exit the case with an early settlement because they can’t hold on through the complete legal process.
By steering clients toward legal funding, the client benefits with earlier access to a payout and the attorney benefits as some of their contingency fees are paid earlier, versus when the lawsuit resolves.
New Client Opportunities
There is an excellent opportunity to find new clients by using legal funding, as long as they can afford the rates and it makes sense for their case. New client opportunities primarily arise when a potential client has complex legal proceedings in the pipeline and needs legal funding to sort out the pending issues in the current case.
One of the obstacles a client can have when deciding whether to litigate is how long it can be between filing suit and receiving any proceeds. Legal funding shortens that timeline and can help convince a potential client to sign on and pursue litigation.
To generate more client opportunities, the concerned attorney needs to build a strong network among their peers to earn referrals and pitch to potential clients regularly to obtain new cases.
Access To The Judicial System
Legal funding can increase the number of people who are able to access the judicial system and get compensation when they have been wronged.
With the help of legal funding financiers, attorneys are better able to take up the cases of less wealthy clients without sacrificing cash flow. And clients don’t have to wait as long to get some of the funds they deserve and need to survive during the litigation process and beyond.
Benefits For Plaintiffs
Plaintiffs usually benefit when they receive cash from legal funding. They typically use the money for living expenses such as food, transportation, medical expenses, and to avoid eviction. The financial problems faced by plaintiffs are solved with the help of legal funding and a significant settlement in the case.
With everyday expenses covered from the legal funding cash influx, plaintiffs do not feel as much pressure to accept an early settlement offer. Due to legal funding proceeds, plaintiffs are able to wait out the litigation procedure and often obtain a higher settlement.
Plaintiffs also benefit from having their interests protected in accordance with laws regulating the legal funding industry.
More Accurate Case Costs
When legal funding is used, the case is evaluated with legal software tools to get a complete understanding of the risk exposure and determine the best strategy to succeed. Litigation teams working on the case benefit as everything can be managed with the legal software tools.
Using the early assessment software as part of legal funding review, the case can be wholly visualized and allow for greater control in managing legal tasks and risks. Since legal funding review is used to determine the likelihood of the plaintiff prevailing in the case and the size of a probable payout, both parties in a suit can benefit from understanding their exposure and making decisions about settlement offers going forward.
The early case assessment can also help corporate counsel find evidence that enhances the transparency, standards, and consistency of the case.
Who benefits when legal funding is used? Typically the client, their attorney, the lender, and investors. Investors earn massive returns with legal funding, which is why institutional financiers like investment banks prefer this field. Strong industry regulation helps ensure that legal funding transactions are above board and within the law.
Another benefit of legal funding is that corporations can hire a legal team for regulatory and legal compliance in their organization. Employing a competent legal team is essential to handle complex cases and do them successfully, favoring the clients.
Legal funding is very flexible for clients to manage their financial obligations without worrying about domestic expenses. Also, the interest rate is pretty low in most organization’s legal funding, which again favors the clients.