Litigation Funding vs. Traditional Financing: Which Is The Best For You?

When individuals or businesses face legal disputes, the costs associated with litigation can be substantial. To address these financial challenges, two primary options are available: traditional financing vs litigation funding. In this blog post, we will explore the key differences between these two funding methods, their benefits, and how they can impact plaintiffs’ ability to pursue their legal claims.

Traditional Financing for Legal Disputes:

Traditional financing for legal disputes involves seeking funds from conventional sources such as personal savings, credit cards, loans from family and friends, or borrowing from banks or financial institutions. In some cases, attorneys may agree to work on a contingency fee basis, where they only receive payment if the case is successful and a settlement or judgment is obtained. Here are some key aspects of traditional financing for legal disputes:

1. Accessibility and Familiarity: Traditional financing options are widely available and familiar to individuals and businesses. Many people are accustomed to borrowing money through personal loans or credit cards, making these options more accessible.
2. High Costs and Interest Rates: Borrowing from traditional sources can be costly, especially if the interest rates are high. Depending on the type of loan or credit card, the interest accumulated during the legal process could significantly add to the financial burden.
3. Credit Impact: Traditional financing can impact the borrower’s credit score and credit history. Late payments or defaults on loans or credit cards can negatively affect the borrower’s credit, potentially affecting future loan applications.
4. Limited Funding Scope: Traditional financing may cover legal expenses, but it might not extend to cover living expenses, medical bills, or other financial needs that may arise during the litigation process.
5. Repayment Obligations: Borrowers are typically required to make regular repayments regardless of the case’s outcome. If the case is unsuccessful, the borrower is still obligated to repay the borrowed funds and the associated interest.

Litigation Funding:

Litigation funding, also known as legal funding or third-party litigation financing, is an alternative funding option that has gained popularity in recent years. Litigation funding involves securing non-recourse cash advances from specialized funding companies to cover legal costs and other necessary expenses while the case is ongoing. Here are some key aspects of litigation funding:

1. Risk Mitigation: Litigation funding is non-recourse, which means that the plaintiff is not obligated to repay the funding if they lose the case. This significantly reduces the financial risk associated with litigation, providing plaintiffs with a safety net.
2. Access to Justice: Litigation funding ensures that individuals and businesses with meritorious claims can pursue legal action without being deterred by financial constraints. It helps level the playing field, allowing smaller plaintiffs to take on larger opponents.
3. Faster Approval Process: The approval process for litigation funding is typically faster and less stringent compared to traditional financing options. Funders assess the merits of the case rather than the plaintiff’s creditworthiness, making it more accessible to individuals with limited financial resources.
4. No Impact on Credit: Litigation funding does not appear on the plaintiff’s credit report, and the funding is not considered a traditional debt. A loss in the case does not negatively affect the plaintiff’s credit.
5. Flexible Funding: Litigation funding can cover not only legal costs but also living expenses, medical bills, and other necessary expenses, providing comprehensive financial support throughout the case.
6. No Repayment Obligation for Unsuccessful Cases: If the case is unsuccessful, the plaintiff is not required to repay the funding, as it is considered a non-recourse advance.

When facing legal disputes, choosing between traditional financing vs litigation funding is a significant decision that can impact the outcome of your case and financial well-being. Traditional financing offers familiarity and personal control but comes with potential high costs and limited accessibility. On the other hand, litigation funding provides risk mitigation, access to justice, and the ability to level the playing field in legal battles, though it also involves fees.

Ultimately, the best option depends on your individual circumstances and the specific details of your case. Before making a decision, it’s essential to consult with an experienced attorney and carefully evaluate the available funding options. Regardless of the choice, securing the necessary funds to support your legal claim is a crucial step in pursuing justice and protecting your rights.

How Amicus Capital Group Can Help

Amicus Capital Group is a provider of litigation finance. We offer funding for both pending and future litigation, as well as risk management services. By funding the costs of litigation upfront, we can help you avoid the need to pay these costs out of your own pockets if you lose the case. If you are considering a litigation financing company in Santa Clarita, CA we encourage you to contact us to learn more about how we can help your law firm.