Litigation funding is a financial vehicle provided to a plaintiff against a pending or already settled lawsuit. If the plaintiff loses their case and doesn't recover damages in their suit, they don't have to repay the lender. If the lawsuit settles the plaintiff will be legally obligated to repay the lender the principle of the advance plus interest. Litigation funding is typically provided to plaintiff's going through a personal injury or commercial litigation suit.
Who provides the funding?
This type of financing is typically provided by a hedge fund. The hedge fund may be financially backed by private investors or a bank. The hedge fund is usually comprised of a hedge fund manager, broker relations manager, administrative staff and underwriters. Each person within the fund has a specific responsibility. The hedge fund manager will oversee the day-to-day operations of the fund. They are responsible in making the final decision on which cases they will invest in. The broker relations manager will be the point of contact for consultants that send clients the fund. The administrative staff will collect documentation and be the point of contact with the attorney. The underwriter will review the cases and determine which cases should be funded.
How do hedge funds determine approvals?
There are two important factors that determine if a case gets funded; strength of case and time frame. The strength of case is usually determined by liability. If the claimant was involved in an accident and there is clear liability, they will have a chance of getting approved for an advance. The hedge fund will reserve the right to deny any application based upon the strength of the case. The time frame will also be an important factor in the process. If the hedge fund believes the case will settle in a short period of time, they are more likely to approve the client. If they believe the Litigation won't settle for a few years, the likelihood of an approval greatly diminishes.
How much money can I borrow?
Most Litigation funding companies have limits. These limits usually range from $500 to $5,000,000. A larger fund may approve more money depending upon the case.
How are rates determined?
The rates for a lawsuit cash advance are will vary depending upon the fund. These rates are usually determined based upon the strength of your case. The stronger the case the better the rate; more risk means a higher rate. This tool is no recourse so companies that are betting on Litigation will always charge a higher rate for a riskier case.
A plaintiff going through a Litigation may have a pressing financial need. If they are being forced into a settlement that only pays pennies on the dollar due to their financial position, they may use this tool as an option. Most plaintiffs request funding to help pay for medical bills, living expenses, rent etc. to get them through a lengthy litigation.
Litigation funding can be expensive and should be used as a last option. This financial vehicle should only be used by those plaintiffs that have no other financial alternatives avail to them.
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