Litigation Funding: Getting Financial Help In Tough Times

By: Merle Farley


Court cases can drag on for years and during that period it's easy to see money dwindling in legal fees. Early settlements or settling for amounts that are not satisfactory just to get the case over with is what many do to keep themselves from going broke.

This unfortunate occurrence can be avoided by seeking a loan from family and friends who allow you to pay it back slowly. However, there's only so much they can lend so once you've exhausted that route, it's time to consider litigation funding.

The process sometimes receives flak for supposedly encouraging frivolous claims while others say financing companies cater only to those clients who have a better chance of winning. This isn't true for reputable companies which make no distinction who to loan money to other than ensuring clients meet certain eligibility requirements. Besides, any financial institution will always hesitate to lend to people with dubious financial standings so the argument cannot be placed against litigation funding companies alone.

The process begins by vetting cases and weighing the odds of winning a verdict. If the risks are too high, the case is usually not entertained but if there's a strong chance of winning companies will more than likely approve an investment. If the verdict is lost, whatever investment was made is also lost and companies will not claim anything. Some lose as much as 20 percent of their investments every year by lending against cases that don't pay out.

Where court cases are expected to drag on for a long time and high expenses are invariably incurred, litigation funding companies can prove to be invaluable to individuals, law firms and corporations alike. For clients, there's nothing to lose if the winning verdict goes to the opposing team but if the tables are turned, not only do they receive a settlement amount that's satisfactory but the lending companies profit from the same. It's a win-win situation even if you have to pay out a substantial sum to the investors.

So what's the return on investment like? Typically, lending companies seek a 25 to 45 percent return. However, the figure is calculated on a case-by-case basis so there's no minimum or maximum amount.

Like all financial matters, there are some risks to approaching lending companies but the benefits far outweigh them. For instance, if a case goes on for years and the verdict falls in your favor, you're liable to pay back a considerable amount and may be left with less than what you expected. But since investors are also taking a big risk with their money, this is to be expected so it isn't a drawback so much as it is a reality.

A rule of thumb for clients is if you don't have to borrow money, don't. You'll be debt-free. But if there's no other recourse and the only way to get through a case is by borrowing money, this is the safest bet. The risks are negligible at best, you don't need to be employed, don't need to get your credit record checked and the amount received won't impact your credit rating.

On your part, do some homework on the reputation and credibility of the lender. If referrals can be sought from a trusted person, all the better. Most of all, calculate the rates carefully to avoid facing a hefty cut if you win the case.

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If you are searching for Australia's largest litigation funder then IMF is the best place to be. They have funded some of Australia's most high profile class action cases. Visit their website imf.com.au for additional details.

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