Starting A Law Firm: How Lawsuit Financing Can Help

date: 04/25/2012

The hard road of law school is finally over. You managed to pass the bar exam and you are now certified to practice law. Once the pomp and circumstance is done, the real journey begins. The motivations that drove you to take the road to become a lawyer are still what motivate you to get up in the morning, but now reality has set in.

The countdown to paying the student loans back begins, the phone hasn't rung after sending out 50 resumes, and the volunteer work and minimal employment you have isn't going to cut it anymore. Some people might panic, but you decide to harness some American entrepreneurial spirit and start your own law firm.

You take cases on a contingency basis because you are fighting on the side of the down trodden against well-funded corporations for a whole host of issues. Your first case is going well, and the corporation offers to settle to be done with the case. You balk at the settlement because you can do better, and the plaintiff deserves better.

However, bills have to be paid and the plaintiff is starting to look like he is going to cave for the first deal presented. Even though it's in his best interest to keep fighting, it's his choice to make. For a lawyer in the old days, begging the bank for a loan or a line of credit was the only way to defeat this problem. But these days, lawsuit financing is another option.

Banks are notorious for how tough they can be when loaning money to small businesses. They have a long due diligence process and have to consult what seems like endless amounts of people before a decision is finally made.

Lawsuit financing can be a much simpler process. A funding company evaluates the case and then decides whether or not to fund. If the company decides to finance the case, monies can often be released in a matter of days. Legal funding can be broken down into two classes: pre-settlement funding and post-settlement funding.

Pre settlement financing is an advance that companies give to lawyers and/or plaintiffs before the case settles to help them fight the case and continue living until an acceptable settlement comes through. Post settlement funding is an advance on a case that has already settled. Both pre and post settlement advances are often non-recourse transactions, meaning that payment is only due if there is a favorable outcome. This is unlike a loan, which must be paid back regardless of outcome.

Litigation can take incredibly long depending on the type of case and the defendant. Sometimes it can take years for a case to settle. And even after the settlement, it can take many months before the legal fees are actually paid out.

If you are a trial lawyer just getting started, a healthy knowledge of lawsuit financing can be a huge plus. Being able to advance money on pending cases can smooth out irregular cash flow and allow you to keep fighting to get the settlement your client deserves.


Written by David Smethie, Deal Origination Manager at RD Legal Funding, LLC


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