Has a business wronged you but can’t afford to take them to court? It’s a problem that’s becoming more and more prevalent in America. Lawyers are expensive, as are court costs, and not everyone can afford them. That’s where litigation funders come in.
Litigation funders pay their clients a lump sum to pay for their lawsuits. If the client loses the case, the client owes their funder nothing, but if they win, the client must pay the funder back the money they were lent, plus a fee.
For someone who has been injured, discriminated against, or had a contract breached and can’t afford to finance a lawsuit, this may sound too good to be true. But litigation funding is very real. Let’s take a closer look at how litigation funding works.
Why Litigation Funding is Necessary
Business contracts and agreements in America today rarely favor small businesses or the individual. It’s common for the little guy to get shafted and the big business to walk away unscathed.
Of course, laws are in place to protect those small businesses and individuals, but if the wronged party can’t afford a lawsuit, those laws won’t be enforced. The parties seeking these lawsuits are often unemployed, broke, injured, or without assets. Under ordinary circumstances, their lack of funding would mean no lawsuit, which means no justice for the wronged party.
That’s where litigation funding comes in.
What Is Litigation Funding?
Litigation funding may sound like a loan, but that’s not exactly the case. Litigation funding is more like an investment. When an investor puts money into stocks, they are betting on the rise and fall of the stock market. Similarly, litigation funders bet on the outcome of the lawsuits they finance.
There are a few litigation funding firms in the United States. These companies employ lawyers who assess cases and determine which cases are likely to succeed.
If they choose to invest in a particular suit, the company will offer a sum of money. This is considered “non-recourse” financing, meaning the person who receives the money does not have to pay it back if their lawsuit is unsuccessful.
The Pros and Cons of Litigation Funding
If you aren’t overly familiar with litigation funding, it’s easy to be skeptical. So let’s look at it from both sides.
The Pros of Litigation Funding
Litigation funding is a great way to level the playing field. Going up against a big business in court isn’t easy when they can afford the best lawyers money can buy. Litigation funding companies give the little guy a chance to get justice when they ordinarily couldn’t.
Litigation companies take on all of the risks. If your lawsuit doesn’t succeed, you are not on the hook for the money you were given. That’s one less thing you must worry about during an already stressful time.
Litigation companies also rarely involve themselves in the court case itself. Once their client has the money, they can approach their lawsuit as they see fit.
The Cons of Litigation Funding
While you take on zero risk when you seek litigation funding, if your case succeeds, the company will require a large repayment, often double what you were given. While you will get a payout from the lawsuit, it’s important to remember what percentage of that will go back to the company that funded your court costs.
It’s also important to note that litigation funding is still very recent, so there is little oversight or regulation.
Summary
If you are looking to open a lawsuit and can’t afford the costs, litigation funding might be the right choice for you. Hopefully, this article has helped you make an informed decision.
