Anyone who has ever been involved in a legal battle can attest that cases often seem to drag on. Unfortunately, delays in the court system are a reality that forces plaintiffs and attorneys to be on hold for long periods before the claim settles or gets a fair trial. These delays can place financial pressure on either a plaintiff, an attorney, or both, compelling them to find some sort of funding/capital while the case is successfully litigated or negotiated.
In this case, you may be considering taking on debt from a financial institution. But you may also be considering borrowing money against your lawsuit proceeds to get over a financial hump or cover other important costs.
When you need a specific amount of money that is much higher than what a bank would offer during the pendency of your legal claim, or if you cannot get financing from a bank, it could make more sense to obtain legal funding—a type of non-recourse financing where the lender takes a stake in your lawsuit rather than in your house, your car, your personal assets, or solid credit history. You repay it once you win your case and recover compensation.
As opposed to traditional lenders, legal funding companies do not require you to make any sort of personal guarantee. That means if, for some reason, outside of your control, your case does not resolve in your favor, then you are not tied to repaying the money that was lent to you. Non-recourse legal funding eases the financial pressure of repayment if you don’t receive a settlement or trial reward.
However, because non-recourse funding requires no collateral, they’re inherently riskier to funding companies, so you can typically only qualify if your case is strong enough to win.
What are the different types of legal funding?
Different legal financing companies offer different types of lawsuit funding services, so it’s a good idea to explore all the different types of financing available in this area. Choosing a company that doesn’t focus on your type of loan could cost you more in interest, or you’ll simply waste your time when that loan is unavailable for your specific case and circumstance.
A variety of factors may influence which type of legal funding is right for you, like whether you are an attorney or a claimant, the type of case you have, and if your case is still pending or settled.
The most common type of legal funding is pre-settlement funding, but some funding companies offer other options that you should be aware of as you shop around.
Below, you can learn more about the various types of legal funding, the ways in which they can be used, and alternative options.
The 8 kinds of legal funding
1. Pre-settlement funding
Pre-settlement funding is a type of non-recourse legal funding that comes from an expected settlement or jury verdict. Depending on your case type, there is a more or less extended evaluation period before approving the loan. The rates are typically higher than conventional loans, and the evaluation period is 24 – 48 hours.
- Personal injury lawsuits (ex., car accidents, slip and falls, medical malpractice, wrongful death).
- Civil rights claims (ex., wrongful imprisonment, police brutality, discrimination).
- Employment and labor disputes (ex., lost wages, FELA).
Pre-settlement funding is best if you are currently going through a tough financial situation and need to cover everyday expenses, bills, or other important costs you can’t afford otherwise during an active lawsuit. This is also a great option if you want to settle your case for its actual value rather than accepting a lowball offer when you need cash immediately. For example, someone who has been wrongfully imprisoned for years and may not have anywhere to recur for additional financial assistance to survive can highly benefit from this type of funding.
2. Settlement loans for settled claims
Settled case funding lets people with settled claims and won jury verdicts borrow money from their proceeds while awaiting payment. The interest rates are much lower than those cases that have not yet been settled, and the evaluation period takes only one business day.
Funding for settlements is designed for plaintiffs who have not received payment from their resolved cases, and the proceeds are over $50,000.
Loans for settled claims are great if you successfully concluded your legal battle, yet you can still not make your monthly mortgage, rent payments, or other urgent bills because the settlement or award payout is taking too long to arrive. You can use them to tide yourself after your case or lawsuit has concluded successfully.
3. Lawsuit loan buyout/refinance
Also called buyouts, a lawsuit loan refinance does what it says: it refinances existing funding contracts into one new lawsuit loan. Ideally, the rate/fees you’ll pay on this consolidation loan are much lower than the interest rate you signed with your previous lender. In simple terms, a different lawsuit loan company will buy out your last cash advance, and once you receive a contract for a new loan, your contract will include the payoff to the previous lender as well as the new loan you are set to receive. Lawsuit loan refinancing lets you replace your existing funding agreement with a new loan that, with the right lender, has a lower interest rate and is capped within a certain period of time. Caps prevent you from paying more interest if your claim takes longer than the cap (usually 2-3 years) to resolve.
This legal funding type is designed for plaintiffs with previous funding from other lenders as long as there is enough space to fund the claim. All cases are eligible for this type of legal funding.
Refinancing a lawsuit loan agreement might be a good option for you if you are looking to lower your interest rates lower than your current lender’s rate or if you are looking for better terms such as a capped rate when the existing loan doesn’t cap at all.
4. Medical lien funding
Surgery and medical funding is a type of legal funding intended to help plaintiffs involved in no-fault accidents to pay specifically for medical costs related to a case of personal injury. Many times injured people feel tempted to put their medical expenses on a credit card or ask family for money due to being unable to work. Medical lien financing is specifically made for uninsured/underinsured injured plaintiffs requiring medical attention in cash due to their recent accident.
One of the most significant benefits is that it is non-recourse, and medical providers get paid in cash before a surgery or procedure. The money is available within 48 hours from approval, and the surgery cost is typically lower than if it was placed on a medical lien, which would pay the provider after the case settles.
Medical lien funding is strictly for injured victims with all types of personal injury claims. (ex. Medical negligence, auto crash, premises liability).
Loans on medical liens are best for injured plaintiffs with strong claims who can prove the other party is at fault and their insurance limits are over $50,000. If you lost your job due to the injuries caused by someone else’s negligence and you require an immediate lien-based medical loan with extra money to sustain yourself after an invasive procedure, this could be a good option for you. For example, if your landlord is threatening to evict you while recovering from surgery, this could be a simple solution that can keep a roof over your family’s head while you recover.
5. Litigation funding for commercial disputes
Slightly different from the other types of funding mentioned above, litigation funding is designed only for claimants with corporate disputes. The capital is generally accessed within two months from when the borrower first applies due to the complexities of commercial claims. Litigation funding typically has no risk and is offered by many litigation finance firms specializing in non-recourse lending for corporate claims worth over $2,500,000.
Some examples of litigation funding for commercial claims are:
- Patent litigation.
- Securities and shareholder claim.
- Qui tam and whistleblower claims.
- Competition and anti-trust case.
Litigation funding for commercial disputes is best for companies and investors with active litigation looking to pay legal fees, costly litigation, or to keep their companies running.
6. Funding for structured settlements
Structured settlement legal funding is a type of cash advance that comes from your structured settlement payment. Since the money is already yours, a lender will simply purchase part or all of your total payout, and you receive one lump sum cash payout. A purchasing company will typically approve this funding type within 24 hours.
This type of funding is designed only for people with structured settlements.
Funding for structured settlements is great if you are looking to liquidate the entire settlement or just a portion of your payments to a factoring (or purchasing) company when you need a substantial sum of cash. For example, if your mortgage company is attempting to start the foreclosing process on your home, if you miss yet another payment, it can be good. People mainly use it when looking to invest in a business, make a major purchase or make tuition payments.
7. Worker’s compensation settlement funding
Worker’s compensation loans are another form of non-recourse funding where you receive a set amount in advance from your potential worker’s comp settlement payment and only pay it back if you actually receive it. These loans provide victims with a specified amount of money to spend on things like medical emergencies and essential bills. When you have a worker’s compensation lawsuit loan, you usually access the cash with hours from approval.
Worker’s compensation lawsuit loans are designed for people with work injuries or occupational illnesses involved in a workers’ compensation case in select states.
A worker’s comp loan is best for claims in select funding states. Not all states qualify for worker’s comp loans. if you cannot afford to make ends meet during the period when your claim is filed and when it eventually settles. For example, if the power company is sending you letters threatening to shut off the lights, you can’t afford to pay them, or grocery shopping every week is becoming time-consuming since you have to figure out what is on sale that week and stick to a very strict budget, then you can highly benefit from this type of funding.
8. Settlement advances for law firms and attorneys
While less common than other types of lawsuit funding, some lenders offer to fund law firms. This funding type is an option solely made for law firms and attorneys, which is based on the future fees from a single case or a portfolio of cases. The interest rate is fixed and much lower than every other funding type available, and the process takes 72 hours.
Funding for attorneys is designed only for contingency fee-based firm law firms and lawyers.
This is best if you are looking for capital to cover day-to-day costs and litigation expenses.
Lawsuit funding and settlement loan alternatives
If the strength of your case do you no good and you can’t get approved for legal funding, other sources of funding may be available to help you meet your day-to-day financial needs.
Disability and unemployment.
If you have been granted or are on disability (whether a private disability insurance policy or else Social Security Disability) or if you are receiving unemployment benefits, then you may use that money to pay your bills while their lawsuit is pending.
Personal health insurance.
Personal health insurance can be another way that you may finance the expenses associated with medical treatments you are forced to undergo because of the injuries you may have suffered due to someone else’s negligence. However, most health plans have a right to subrogation, which is a legal term. Subrogation means the health insurer can seek to recoup expenses paid by the plan if you file suit against the person who caused your injury and successfully recover damages.
Family and friends.
You can seek financial assistance from family members or friends, but that doesn’t last long.
You can use your credit card to cover your expenses. However, maxing out your credit cards in a desperate attempt to stay afloat financially while your lawsuit is slowly working its way through the courts is never a wise choice.
Now that you are armed with some strong knowledge about the common types of funding for legal battles, you may be ready to make a wise decision about which one is right for you. As you consider your funding options, take a look at Baker Street Funding.
There is an assortment of funding options to choose from, and you’ll get a fixed interest rate, capped. There is absolutely no risk when you borrow money from your pending case with Baker Street Funding, and you’ll be eligible for additional lawsuit advances as your case progresses.
Want to find out which legal funding type makes sense for you? You can find out if you pre-qualify in just a few moments.