When you are the victim of a personal injury, life doesn’t pause. The accumulation of medical bills, rent, groceries, and other daily living expenses can lead to financial strain. That’s besides the physical and emotional toll of your injury.

Although attorneys are available to advocate for their clients in legal matters, lawyers are legally prohibited from providing financial help to their clients. This is when settlement funding companies, also called litigation funding, become relevant. This financial option provides you with assistance in resolving financial difficulties during a civil lawsuit and can help you get a fair legal settlement.

What is Settlement Funding?

Settlement funding, also known as legal funding or lawsuit loans, is a financial service that provides cash advances to injured victims involved in pending legal claims or lawsuits. It provides you with immediate funds to cover daily living costs, medical expenses, car payments, or other financial obligations while your case is ongoing.

One distinguishing feature of settlement funding is its non-recourse nature. The decision to provide legal funding is determined solely by the strength and value of your suit, not by your personal financial standing. Elements such as your credit rating, income level, and job history are irrelevant.

Non-recourse means that the settlement funding provider only gets repaid a piece of the settlement or judgment if your case is successful. But if you lose, you owe nothing, and you won’t be in debt. This structure is a stark contrast to traditional loans, where repayment is mandatory regardless of whether you can make payments.

The Settlement Funding Application Process

The process of obtaining settlement funding involves the following steps:

First, you apply to a settlement funding company and provide details about your case and your attorney’s contact information.
The funding company will then need your personal injury case information from your attorney. This information may include the details of the lawsuit, medical treatments, the other party’s insurance, and the estimated settlement value.
If your attorney is responsive, the lender will then assess the probable settlement amount and the risk associated with your case. That evaluation is to determine the amount of funding you are eligible to receive, and it involves a discussion with your attorney.
If your application is approved, the loan company offers you a non-recourse funding agreement. This agreement outlines the terms of the advance, including the repayment amount and any fees or interest.
After signing the funding agreement, you can receive the cash within 24 hours. If you win your case, the agreed-upon portion of the settlement goes to the settlement funding company. There is no legal requirement to pay them back if you do not win.

Case Evaluation Criteria

Pre-settlement funding companies evaluate legal cases by considering several factors before approving them for funds. This evaluation process is known as underwriting. It involves the provider assessing the level of risk it is willing to assume when providing the advance.

The criteria to qualify for settlement funding are as follows:

A legitimate case. You need to have a legitimate claim resulting from incidents like automobile accidents, wrongful imprisonment, workplace accidents, medical malpractice, slip and fall, wrongful death, lawsuits for qui tam, or any other case of a similar nature.
Liability. This term refers to who is at fault in the case. If the claimant (the person applying for a lawsuit loan) isn’t at fault, then the chances of getting approved increase.
The severity of injuries. Your attorney must provide medical records showing the severity of the client’s injuries. More severe injuries have a greater chance of the lawsuit settling for a higher payout. In this case, approval is more likely.
Insurance coverage. A defendant with substantial coverage or assets increases the possibility of obtaining compensation and, therefore, loan approval.
Legal representation. Your attorney’s success record, reputation, and willingness to take the case to trial, if necessary, are also part of the criteria. A lawyer with a proven history of successful settlements or verdicts indicates the possibility of a strong case. This increases your odds of getting lawsuit loan approval. However, you cannot receive settlement funding without a lawyer or consent to your loan request.
Case progress. The legal funding company will also consider how far along the case is. If your case is close to settling, it may improve your odds of loan approval.
Approximate settlement worth. The higher the anticipated settlement value, the more likely the lender will approve your settlement advance application.

Fees and Interest Rates: a Necessary Trade-Off

Settlement funding, often regarded as a lifeline for those battling long-running lawsuits, undoubtedly comes with higher interest rates compared to conventional loans. This fact may seem discouraging at first glance; however, this funding offers many unique benefits that justify its higher rates.

Unlike bank or credit union loans, where the repayment is almost guaranteed to them through collateral or a steady income, legal funding providers rely heavily on the outcome of a yet-to-be-decided legal case. Lenders who offer these advances are taking a major gamble on the end result of each case. There is a very real possibility that they may not see a return on their investment, as repayment is contingent upon your lawsuit’s victory. Due to this risk, lawsuit funding rates will always be higher than a bank loan.

However, these rates can vary significantly from company to company and can also depend on the length of time it takes for a case to settle.

Settlement Funding Benefits

Settlement funding can offer numerous advantages to individuals who are waiting for their legal settlements to be finalized. With the uncertain nature of legal battles, it can sometimes take months, if not years, for a case to come to a positive resolution. During this time, those involved may experience significant financial distress. It is not uncommon for bills to continue to pile up and struggle to stay afloat.

Here is how legal funding can makes all the difference:

Support financially. Settlement funding can prove invaluable for people who’ve suffered life-altering events, such as auto accidents or discrimination and wrongful dismissals from employment positions, or even wrongful incarceration. There are barely any restrictions on how you can use the funds. It helps cover those extremely important costs when you’ve already exhausted every other financial option available.
Stronger negotiating position. Consider a scenario where an insurance company offers you a quick, low-ball settlement to close your case. With settlement funding, you can reject this offer, knowing that your immediate lawsuit-related financial needs are taken care of. Having the money you need allows your attorney to negotiate the true value of your case.
Quick access to funds. While traditional financing requires extensive paperwork and an extensive approval process, settlement financing is approved within 24 hours with minimal paperwork involved. Rapid turnaround times can be a huge help when you need prompt access to money.
Non-recourse funding. As mentioned, if you lose your case, you don’t have to repay the funding company anything at all. This aspect can provide much-needed comfort, especially for those already dealing with the stress of a lawsuit.
No impact on credit score. Lawsuit funding does not require a credit check, and it doesn’t affect your credit score if you lose the litigation. It’s a good funding option if you have less-than-perfect credit or want to avoid adding more liabilities to your credit report.
Larger amounts. Funding companies generally provide larger funding solutions based on a percentage of your case value.

Settlement Funding Disadvantages.

Although a lawsuit funding company can offer you several advantages, you should also be aware of the potential disadvantages.

High Cost. Settlement funding has higher interest rates than traditional financing options, which can increase the cost of borrowing when you win your case.
Limited Availability. Legal funding companies may be reluctant to extend funding if the lawsuit is too new or the injuries are not severe. These cash advances are also not available if you are seeking damages from a party with no insurance.
Restricted to specific jurisdictions. Non-recourse litigation funding isn’t available in all jurisdictions. If you have a claim in a state where funding companies aren’t operating because of strict regulations, you may not have access to financial help during your personal injury lawsuit.
Regulation restrictions on amounts. Very few states have adopted laws that limit the amount of money that you can borrow from lawsuit funding companies. For instance, Illinois’ government regulation limits lawsuit loans to $40,000. In this case, it’s unlikely that you’ll be able to obtain additional funds if the total amount of loans exceeds $40,000. With these laws, you have to find a way to make ends meet with less than $40,000 throughout your entire case. That’s even if you are seriously injured, can’t work, and the case takes years to resolve.
Potential for abuse. Most legal funding companies adhere to ethical practices and interest rates consistent with industry standards. However, there are a few lawsuit lenders that charge higher than the norm. If you enter into a funding agreement without fully understanding the terms, you could end up owing a significant chunk of your settlement to a predatory lender.
Possible influence on your willingness to settle. The decision to accept a settlement offer should always be made based on its fairness and the guidance of an experienced attorney. Not by the availability of settlement funding. While it is understandable that financial distress may create a desire for a higher settlement, prioritizing your attorney’s advice will reflect the best interests of your case.

Misconceptions and Consumer Protection Guidelines.

Settlement funding companies play a critical role in providing financial support to injured plaintiffs during lengthy and costly litigation. However, due to its largely unregulated nature, misconceptions and misinformation plague the legal funding industry.

One common myth is that settlement loans must be repaid because of the term “settlement loan”, regardless of the case outcome. This falsehood is nothing more than a marketing ploy aimed at encouraging more accident victims to apply with the company promoting these lies.

Nonetheless, the reality is that it would not be financially wise for settlement lenders to provide recourse loans on future compensations of uncertain lawsuits. Here is why: Requiring repayment in cases where there is no recovery would mean continuously operating at a loss, ultimately leading to the collapse of such entities.

Moreover, if settlement funding companies engaged in such anomalies, it wouldn’t be long before they found themselves under full regulatory scrutiny. Regulatory action would be a non-negotiable consequence for the whole industry if these irregularities were truly widespread.

Settlement Funding Regulations.

Legal funding regulations exist on a state level, with the rules varying from one state to another. Some states are fighting to require lenders to disclose settlement funding agreement terms to the defendant or insurance company. These disclosures include informing the other side the total amount you owe in settlement advances, the annual percentage rate, and any additional lawsuit loan fees.

Additionally, very few states, such as West Virginia, classify non-recourse advances as loans and impose usury laws, so lenders charge banking rates of up to 18% APR. Unfortunately, because of these strict laws, settlement funding companies have discontinued their services in states like West Virginia or Kansas.

Ironically, implementing lawsuit lending regulations does in fact indirectly help insurance companies that predate injured victims by lowballing them. At the end of the day, if your state decides that settlement funding is a loan, when in fact is not a loan, financial assistance will not be available for you.

But regulations don’t only play a role statewide. They also happen nationwide. An instance of this is the case where veterans who were harmed due to 3M earplugs won $6 billion in a settlement. Yet, Judge M. Casey Rodgers, who presides over the 3M case, released Order Number 61, effectively banning injured veteran plaintiffs from obtaining financial assistance for their 3M settlement claims. This means that no legal funding company can offer funds to the brave military veterans who have served our country, as they continue to suffer.

In light of this, most states view settlement funding as the reality that it is: investments into the results of a lawsuit.

Overall, the pre-settlement funding industry plays an integral part in providing indispensable financial support to personal injury victims during their time of need and this help should not be banned by the state.

The Bottom Line.

For personal injury victims who are facing financial hardship, settlement funding is a valuable tool. In addition to providing financial relief, it allows you to get the necessary funds you need to fight for the justice you deserve.

Despite the higher interest rates, the non-recourse nature of the funding balances out the risks to lenders. These increased rates serve to offset the risk the lender takes in providing funds without the guarantee of repayment. Borrowers, on the other hand, are protected from additional financial burdens if the lawsuit does not conclude in their favor.

Since the industry is widely unregulated, when looking for settlement funding, consider choosing a reputable lender that offers fair terms and transparent practices. Baker Street Funding is one of these companies known for its ethical practices and commitment to providing a secure and dependable solution to plaintiffs suffering personal injuries.

If you’re in need of financial assistance while your accident lawsuit is pending, consider a settlement loan from Baker Street Funding. With competitive non-compounding low rates and a no-win no-pay guarantee, we’re here to help you every step of the way.