Many banks and alternative lenders are facing new and tougher regulations since the recession and in turn are making tougher lending standards for small businesses to borrow money. If a law firm is lucky enough to get money, the time period between applying for the loan and getting it can be extensive, which can leave the firm in a bad financial situation. Furthermore, because banks do not consider a law firm’s case load as collateral, it is almost impossible to get the full amount of money a firm requires.
Small law firms generally face cash flow problems and need people who understand their situation. Many lenders do not know the complexities that a plaintiff attorney faces and are hesitant to loan the money. Plaintiff attorneys need these funds because they defer their fee until the case is settled and have to vigorously pursue the case to win. Working on a contingency fee basis often leads to gaps between legal fees.
Post settlement funding involves a finance company purchasing a legal receivable and advancing a portion of this fee. This differs from pre-settlement funding, where an advance is made on a case before there is a settlement.
There are certain types of cases where post settlement lawsuit funding is appropriate, as there is often a gap between the time of settlement and when the legal fee is actually paid to the plaintiff or attorney. Due to court delays and administrative issues, class actions, mass torts, and personal injury cases sometimes have a gap between settlement date and payment date. Therefore, post settlement financing makes sense as a cash flow management solution to bridge this gap and provide cash when it is needed.
Written by Lulaine Compere.