A Beginner’s Guide To Litigation Funding: What You Need To Know

Society Arnab Dey Legal 12 May 2023 5 Mins Read
Litigation Funding

Litigation funding is a rapidly growing industry that has been changing the landscape of the legal industry.

As this practice becomes more prevalent, it is crucial – especially for beginners – to understand what litigation funding is and how it works.

In this blog, we will dive deeper into the world of litigation funding and discuss

  • What is the litigation process
  • The various types of funding available
  • The beneficiaries of litigation funding.
  • How to find a litigation funder

Buckle up as we delve into the ins and outs of litigation funding and why it’s such a critical topic for anyone looking to pursue or defend a legal action.

What Is Litigation Funding?

Litigation funding, to put it simply, is the act of a third party paying money to sustain a legal action up until a settlement or verdict is obtained.

Litigation funders provide essential financial assistance to assist plaintiffs and defendants in covering litigation expenses and reducing the chance that the case will be lost for lack of appropriate money.

Types Of Litigation Funding

Types Of Litigation Funding

Giving financial support to each person and company involved in a legal fight is known as the act of litigation funding.

Here are the many kinds of lawsuit funding offered and how they might help various parties.

1. Direct funding

Let’s look at our first type of litigation funding — direct funding. This is the most common type of litigation funding that involves third-party litigation funding, including litigation finance investors providing capital to either plaintiffs or law firms.

This capital is used to cover different litigation costs like

  • Legal fees
  • Expert witness fees
  • Administrative expenses

This type of litigation funding also involves a legal agreement that outlines the percentage of all the funds available to the plaintiff and repayment terms.

2. Indirect funding

Second, there is indirect funding. This involves a third party that gives a loan or credit facility to the plaintiff or law firm. This is used in commercial litigation financing as it helps different businesses not be involved in financial risks or bankruptcy that come with litigation.

This type of litigation funding allows accessing a line of credit that can be utilized to cover all the expenses related to litigation rather than using it in specific fees tied to specific costs.

3. Pre-settlement funding

Third on our list is pre-settlement funding, known as pre-trial or settlement funding. This type of litigation funding is popular among plaintiffs who face financial instability or need immediate funds to cover medical bills or other expenses that arise during litigation.

This occurs when a third party provides financial assistance to a plaintiff before the settlement or verdict.

More so, This type of litigation funding is non-recourse. This only means that the funding party does not receive the money back if, for instance, the plaintiff fails to win their case.

4. Post-settlement funding

Finally, post-settlement funding involves a third party providing capital to a plaintiff or attorney as soon as a settlement or verdict is reached. Post-settlement funding can help plaintiffs receive compensation rather than waiting months or years for a settlement check.

Who Can Enjoy Litigation Funding?

Enjoy Litigation Funding

Litigation funding can be a lifesaver for individuals involved in a legal claim who don’t have the financial resources to pursue it; this includes:

1. Plaintiffs

For plaintiffs, litigation funding can support a complex legal claim. In some cases, plaintiffs may have difficulty affording litigation costs, such as

  • Expert witness fees
  • Court filing fees
  • Other related fees

A Litigation funding agreement can help fund these expenses, mitigating the financial risk for plaintiffs and increasing their chances of obtaining a favorable outcome.

2. Defendants

This litigation may provide defendants with a tactical plan to represent themselves successfully in court. The Defendants might have to pay astronomical legal fees and penalties, which could endanger their company.

However, they can defend themselves and lower their risk of bankruptcy or insolvency by using litigation finance.

3. Lawyers

Lawyers can also enjoy litigation financing, particularly those working for solo and small law firms. These lawyers may not have the capital to take on high-risk cases or the receivables infrastructure to provide retrospective funding.

Litigation funding can help these lawyers level the playing field and monetize their receivables by sharing in the settlement or judgment.

4. Large law firms

Businesses might gain from commercial litigation funding in court cases or arbitration disputes. These companies can use litigation financing to reduce their out-of-pocket expenses and risk. This can free up funds to be more confident reinvesting elsewhere.

By leveling the playing field between plaintiffs and defendants, commercial litigation finance can help ensure that justice is done for all parties, regardless of their financial situation.

How to Find a Litigation Funder?

Finding a litigation funder can be hard, but there are some helpful steps you can take to make the process easier.

  • First, conduct some research Look for reviews online of various litigation funders and read up on their terms & conditions and fees.
  • Ask a friend who has used it and what their experiences were like.
  • Get in touch with each funder to discuss your case and negotiate terms.

Make sure to analyze all offers before accepting any product – you want to ensure that you are entering into an agreement with a reputable funder under reasonable terms that work for both parties involved.

Final Thoughts

In conclusion, litigation funding is a helpful tool for parties involved in legal disputes who lack the financial means to pursue or defend their claims. It may offer essential help and assist in leveling the playing field between parties with varying financial means.

Making informed choices is crucial when using litigation funding, though, as there are possible negatives, such as high-interest rates and giving up control of the case.

Hence, litigation finance can be a powerful instrument when utilized properly, but it should never be used carelessly. Research and thoughtful consideration are essential.

If you need help, you can visit Omni Bridgeway for a thorough exploration of this complex topic – get all the answers you need for making legal financing decisions confidently.

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Arnab is a passionate blogger. He shares sentient blogs on topics like current affairs, business, lifestyle, health, etc. If you want to read refulgent blogs so please follow Voice Faction.

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