Business & Finance

A Beginner’s Guide to Understanding Litigation Finance

When a business or individual finds themselves in a legal dispute, it threatens their livelihood and the company’s future. Your business could be sued over patent infringement, a wrongful termination lawsuit, failing to disclose a health risk, or any other legal matter.

A legal dispute can be costly to an individual or a business, so engaging in litigation is only done as a last resort. This last resort can cost millions of dollars to endure. This is where litigation finance can help.

What is litigation finance, and how does it work? Keep reading to learn more!

What Is Litigation Finance?

Litigation finance is a form of alternative financing or investments in the legal finance sector. It involves investing in a lawsuit’s potential outcome to help ensure that those involved in the legal case have the financial resources needed. 

How Does Litigation Finance Work?

With the help of money from litigation finance, people can pursue legitimate cases. The process starts when a person makes a claim independently or through an attorney. They show their case to a provider of litigation financing, who looks at it to see if it could be profitable.

If the lender thinks there is a good chance that the person will win, they may give the person a loan to pay for legal fees and other costs related to the case. The loan will be paid back with a share of any recovered money, no matter what happens.

Interest rates on litigation finance depend on the lender and the agreement. Still, they are usually non-recourse, which means the lender will only try to get its money back if the case goes well.

The Pros and Cons of Litigation Finance

Litigation finance gives litigants much-needed cash, allowing them to keep going with a case they might have had to drop otherwise. It also lets law firms manage their caseloads by changing how they think about the costs and risks of each case.

On the other hand, the costs of litigation financing, such as interest and the need to pay back the loan, can be very high and make the process more expensive than expected. This could make the problem’s solution worse than the problem itself.

It can also be hard to get financing, especially for smaller cases, and there is often not enough litigation finance available. Before deciding to use litigation finance, lawyers and people in court should carefully weigh the pros and cons.

Types of Litigation Finance Agreements

There are two main kinds of agreements: those that depend on events and those that don’t. If the case is successful, the money for legal representation and other study costs comes from a contingency-based agreement.

Non-contingency-based agreements cover legal costs and other study costs without requiring success up front. Depending on how the deal is made, either side can decide whether a flat fee or a settlement percentage will pay for the legal costs.

Be Confident With Litigation Finance!

Overall, litigation finance is an excellent option for those with legal cases but limited resources. Companies that offer these services provide financial security, allowing those in need to pursue their court cases without risking bankrupting themselves.

You should now feel confident approaching litigation finance and applying it to your legal proceedings. For more information on litigation finance, contact an experienced litigation finance specialist to learn more about how it can support your legal strategy.

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