Trial Financing

What Is Trial Financing?

Trial Financing or as it has also been called legal funding is a newer type of loans. With that legal financing is growing more and more everyday in popularity. But people are asking all the time what is this and how does it work.

Explaining The Funding…

Lawsuit loans

law loan

With that being said lets dive into it and explain what it is.

Attorneys and legal professionals everywhere usually do not know what legal financing is or how a trial finance works. Usually legal financing is for plaintiff’s and plaintiff’s only until recently which now there are some companies that are offering if for defense.

Plaintiff Funding

Usually how this works for the plaintiff is they or the law firm/lawyer take a loan on a lawsuit. There may or not be interest on this loan. From there when the lawsuit settles, the company that has supplied the loan gets a percentage of the lawsuit settlement. Some things that can add or subtract to the attractiveness of this to a law firm is that sometimes the “loaner” will need to put a lean not only on the case that needs to be financed but also the other lawsuits that the attorney/law firm has. Also if there is interest on the lawsuit and waiting for it to settle it sometimes can be high. With all of that out though if a case might settle for 10 times of the loan if might be worth it.

Defense Funding

lawsuit balanceFor a defense litigation loan the way that it usually works is that an amount for settlement is decided and if the settlement is that amount or under it is considered a success. Just like the plaintiff law firm loans there are some things that can add or subtract to the attractiveness of this. The law firm may have to offer some different cases from their law firm portfolio to put a lean on.

Pros & Cons

The pros for taking one of these loans is that it usually is non recourse which is great for attorneys, lawyers, plaintiffs and defense. Meaning that if the case is lost there is no risk to the party and they do not have to pay back the loan.

One of the cons of taking one of these loans is that they have to go through underwriting. It sometimes can take days but usually it will take a couple of months due to underwriters not only going through the case that needs the money but also the portfolio of cases that need to have the lean put on them. It is usually tortuous and very invasive especially when it comes to confidential information. Another con is if an attorney or firm has had a bad credit rating it could be the kiss of death for the deal. Also since it is non recourse sometimes a deal will go bad just due to a person that is financing the deal has a bad day. Since the financing in non recourse they are taking all of the risk. So it happens quite often.

A Note On A.I.

Artificial intelligence will run the underwriting process. Attorneys hate to hear this because they usually think that their case is worth something and usually it is not worth even close to what is though. Usually commercial litigation finance is the only exception to this.

One more note is that usually the trial financier can have and usually does “control” to some degree the direction of the money that they fund and they can exercise where that money is spent.

So that is how trial financing works but who knows where the future of it is going. It is new but it is not going away…

Thank you from the following companies for their help with this article

Verum Funding
Stanford Edu
Business dictionary