Litigation funding, also known as litigation finance, is the mechanism or process through which plaintiffs of law firms may finance their litigation or other legal costs through a third-party funding company. In return, the litigation funder receives a portion of what the plaintiff recovers.
There are many benefits of this situation:
1. Litigation Finance enhances access to justice.
Litigation funders enable claimholders to bring legal action that they would not have otherwise considered because of the inability to finance the action or of the financial risks of losing it. Litigation and arbitration might be so expensive that many people cannot afford it – particularly in high-stakes litigation against deep-pocketed defendants.
Claimants that lack the available cash to pay legal fees often turn to litigation funders as a necessary means to enforce their legal rights. Sentry Funding is helping everyday people and small businesses access funding through its revolutionary Fast Track technology, which is speeding up the funding process and saving claimants money.
It is worth mentioning that litigation funding deals are typically non-recourse, meaning that there is no requirement to repay the funder any money when there is no recovery made from the case. This is the critical factor that makes these arrangements so beneficial for claimants. Without it they would simply not have their day in court against well-resourced defendants.
2. Litigation Finance makes your case better.
Litigation funding gives your case a better negotiating value as it is additionally assessed (at no cost) by a third party. Given that typically 95-97% of all cases are rejected by the funders, this solidifies the merit of your claim. Moreover, such assessment early in the life of a dispute may greatly enhance the strategy of the case.
In addition, when another party realises that a well-established litigation funder is supporting your case, it often strengthens plaintiff’s bargaining power, and possibly influenced the dynamic of settlement discussions in the plaintiff’s favour.
3. Litigation Finance is a great alternative to the loan.
The funds obtained from a litigation funder could be more attractive than a bank’s loan taken for lawsuit financing. This loan must be repaid in any circumstances with accrued interest, even if the case is lost at trial. In third-party funding, which is non-recourse, a return on investment is collected only if the case is successful. And it does not include any ongoing principal and interest payments. Litigation funders’ investment is collateralized by the lawsuit itself, which means that no personal assets are on the line to return an investment should a recovery fail to materialise.
4. Litigation Finance improves claimants’ liquidity and budget.
Some claimholders, either a natural person or a business, have the financial resources to pay for litigation, but would rather use those funds for other purposes, such as investing in business growth. Legal fees are still expenses and legal claim is not recognized as an asset for accounting purposes. Both these examples negatively affect the company’s budget and its financial situation. However, by obtaining funding from a litigation funder, legal fees are not recorded on a company’s books, improving its cash flow and profit. Eventually, if the litigation is successful, an in-house legal department can be a profit centre, rather than a cost centre.
5. Litigation Finance may help you build your network.
You might not be familiar with all lawyers participating in litigation or in choosing the appropriate law firm for your legal representation. Litigation funders, on the other hand, often have strong connections with specialized lawyers and top tiers law firms with an outstanding track record in various legal fields and jurisdictions. Third-party funding not only allows you to choose lawyers from the pool of the best on the market but also let you hire lawyers that you might not otherwise be able to afford.
6. Litigation Finance Hedges your risk.
Litigation could not only be expensive but may also become risky. Using the service of a litigation funder is an excellent option when the business is ready to file a suit but does not want to risk any sinking costs in legal fee. It could turn out to be very costly when the case is ultimately unsuccessful.
February 11, 2022
Insights
