How Does Legal Funding Work?

March 10, 2020Daniel EichholzBlog

Legal experts have noticed that lawyers working on a contingency fee basis, and their clients, had a need for cash flow during the lengthy process of a lawsuit. Thus, the concept of legal funding was born. Within the last few decades, the legal funding industry has experienced much growth. However, the whole legal financing issue is still quite new, so the general public is not well-informed on how it works.

Legal funding can be described as a way for lawyers and plaintiffs to get financial assistance based solely on the strength of a lawsuit and the amount expected to be received from the case. The concept of legal funding was designed to help plaintiffs who have experienced trauma and who desperately need financial help during the legal process. Attorney funding is also available for lawyers who have insufficient capital to propel their businesses forward.

Legal Funding Defined

Legal funding is defined as advance monies available for contingency fee lawyers and plaintiffs and is calculated based on the expected settlement amount. Other terms for legal funding include:

Settlement loans
Lawsuit loans
Lawsuit lending
Litigation financing

By using a third party called a funding company, individuals who’ve filed a lawsuit can finance their case. Even law firms can finance legal expenses this way. Here is how it works. By agreeing to receive a percentage share of the final legal settlement amount or the court judgment amount of the pending case, a funding company will provide a cash advance amount to litigants.

There is a risk involved for the third party funding company. If the lawsuit goes to trial and the plaintiff does not win, the funding company does not receive a penny and even loses the amount of money already given to the plaintiff or the lawyer. The company is not allowed to pursue any repayment in such cases. The term “non-recourse” is used to describe this type of advance.

Legal Funding Is Not a Loan

There are no upfront fees, points or monthly payments like there are with a traditional loan. Even though there may be some costs connected to handling the advance, like underwriting expenses, for example, these amounts are never collected upfront. All costs are typically paid when the cash advance becomes due after the lawsuit is settled or finalized.

The Legal Funding Process

There is a simple three-step procedure used by The Legal Funding Group for litigants to get financial help through cash advances and settlement funding. The three steps are as follows:

Application Online or by Phone – The first step in the process to receive pre-settlement funding is to complete an application by phone or online. A specialist from The Legal Funding Group will then next ask for some easily obtainable documentation from you or your attorney. We will request confirmation from you that the documented information on the application is true and correct. It is important that we follow these simple procedures in order to be prepared to contact you immediately upon approval to get your cash advance sent to you at the right place.
Verification From Your Attorney – When you apply for legal funding, we will ask you to sign a release form allowing us to contact your attorney for information about your case. Verifications have to be completed for you to be approved to receive pre-settlement funding from The Legal Funding Group. We will verify aspects of your case after you complete and sign the release form. In this verification phase, we will verify details about the case and the total amount of damages that were sustained. In addition, we’ll make sure the defendant will be able to pay the settlement amount. Lastly, we’ll check to see if any former lawsuits exist that could change the outcome or prohibit or adversely affect the final result of your lawsuit.
Approval and Money Transfer – The complete process of legal funding will involve an examination of the application and your case details, along with examining your legal representative’s correspondence and verifying details. The experience and skills our team members display help us produce quick approval results even though the application process is very thorough. When all documents are carefully and correctly completed and submitted in a timely manner, approval can be acquired and funds transferred in a matter of 24 hours. Diligence and focused effort can be rewarded with the approval of your lawsuit funding amount and a wire transfer to your bank account within a day.

Upon approval for pre-settlement lending through The Legal Funding Group, the funds can be sent to you in a number of ways. You can choose to have an overnight check directly deposited into your bank account, or the money can be directly wired there. However, if you prefer, a cashier’s check can be sent to you.

When injuries have changed your life, and mounting medical bills from the damages are causing financial strain, obtaining funds to help sustain you through the lengthy legal process could be exactly what you need to get back on your feet. Legal funding can help produce a successful recuperation and allow you to have what you need during the time you are seeking justice. This helps eliminate the need to cave into fear and make a hasty decision to quickly settle your lawsuit for a smaller settlement amount than you deserve.

When to Consider Legal Funding

There is no way to show how litigation will proceed and how long a case will last. In general, it is typical for personal injury cases to take two years from the point of filing the case to the time the final settlement is distributed. Other lawsuits like malpractice, class action suits and MDLs may go even longer. If a case involves the processing of paperwork for international entities, governments or minors, the lifespan of the case may reach ten years or more. Plaintiffs, however, no longer have to be financially crippled during the lengthy wait for justice.