As a relatively new industry, there are some unfortunate misconceptions about litigation financing, better known as lawsuit funding. Let’s set the record straight and debunk a few of the most common myths we hear about lawsuit advances:
Lawsuit advances are loans.
The confusion here is understandable because of the phrase “lawsuit loan,” which is sometimes used to refer to a lawsuit advance. However, lawsuit funding is very different from a loan. Loans must be paid back over a set period of time (with payments each month) plus interest. Unlike loans, lawsuit advances do not require any monthly payments and are advances of lump sums of money.
If a case loses, the client must pay back a lawsuit advance.
Again, a lawsuit advance is not a loan and therefore does not need to be repaid. If your case loses, you don’t need to pay back the advance. Lawsuit funding is a form of non-recourse financing. So, if your case wins or settles out of court, then and only then do we receive a payoff (from the settlement, not from you). We take on this risk, which is why the interest charged for a lawsuit advance is higher than interest on a loan would be.
Advance lawsuit funding is unethical.
This is simply untrue. In fact, many companies (Resolution Funding included) voluntarily adhere to the American Legal Finance Association whose role is to ensure ethical, fair, and transparent funding standards within the legal funding industry.
Legal funding companies will take all your lawsuit winnings.
Rest assured, this is inaccurate. We have a simple and transparent way of calculating how much advance we will give a client that we’re happy to share. Not to mention, it is impossible for us to take all of your personal injury award in the case of a pre-settlement advance, since we don’t have any way of knowing what you might receive.
Attorneys don’t like lawsuit funding companies because they get involved in your case.
No lawsuit funding company would ever get involved in your case—that’s not our role. Our business is advancing money to plaintiffs facing difficult financial times by “buying” a portion of their lawsuit winnings when we feel a client’s case has a high probability of winning. We never become involved in our clients’ cases. All decisions about your case, when or if to accept an offer to settle, or any other matter are between you and your attorney.
It’s difficult to get a lawsuit advance.
While we do go through an underwriting process before we decide whether to advance money to a client (and to determine how much), the process itself is very easy. We do not request your credit score (another myth we hear from those new to our industry) and we don’t make you complete a lengthy application with employment verification. Your lawsuit is the basis for our decision. If you have a strong case, there’s a good chance we’ll be able to advance you funding.
The bottom line is that companies like Resolution Funding work with plaintiffs in the middle of lawsuits who need money to pay their bills and support their families while they’re waiting for their cases to settle in or outside of court. We’re not a bank, we do not get involved in your case, and we really do try to keep things as easy and painless as possible. If you’re unclear about the process or have questions, just give us a call. We’re happy to help you understand what goes into a lawsuit advance. It’s much simpler than many probably assume.