Securing litigation funding can be a game-changer for law firms, but success starts long before you reach out to a funder. The approval process hinges on how well-prepared you are to present your firm’s strengths, from case portfolio metrics to financial documentation. Approaching funders without a clear strategy or the right information can lead to missed opportunities or unfavorable terms.
Understanding what litigation funders look for—such as strong legal merits, historical success rates, and realistic recovery estimates—can make all the difference. By preparing thoroughly and addressing potential weaknesses upfront, law firms can position themselves to secure funding that supports growth and drives success.
What Are Litigation Funders?
Litigation funders are financial specialists who provide capital to law firms, enabling them to pursue cases or meet operational needs without upfront costs. Unlike traditional financiers, these funders deeply understand law firm operations, portfolio valuation, and contingency fee structures. They specialize in identifying firm growth opportunities and often provide strategic funding for acquisitions, partner buy-ins, retirement transitions, and infrastructure improvements.
These funders evaluate law firm funding opportunities differently from single-case funders, focusing on long-term profitability, portfolio strength, and strategic growth potential. Their expertise in law firm financing makes them ideal partners for firms seeking sustainable capital solutions.
What to Consider Before Contacting a Litigation Funder?
Approaching a litigation funder requires careful preparation to maximize your chances of approval and secure favorable terms. Funders assess factors such as case portfolio strength, financial stability, and operational efficiency, so reviewing these areas in advance is essential. Thorough preparation demonstrates professionalism and positions your firm as a low-risk, high-potential investment.
Below are the key aspects funders evaluate, with tips on how to get litigation and strengthen your application:
“Loan” to Value Ratio
Funders evaluate the relationship between potential damages and litigation costs across a firm's case portfolio. A strong “loan” to value ratio ensures that the potential recovery justifies the financial risks involved.
Examples:
- A commercial litigation case with potential damages of $5 million and projected litigation costs of $500,000 will likely appeal to funders, as the damages are significantly higher than the costs.
- Conversely, a case with $100,000 in potential damages but $80,000 in legal costs may be deemed too risky, as the ratio is insufficient to justify funding.
Most funders like to see a 10 to 1 ratio between damages and funding amount. To strengthen this ratio, firms should prioritize high-value cases with manageable litigation costs and present clear evidence of potential recoveries.
Proven Case Collection Ability
Litigation funders expect law firms to demonstrate a strong track record of successfully collecting judgments or settlements. Funders look for consistent metrics that reflect a firm’s efficiency in turning legal victories into financial results.
Examples:
- A personal injury firm that collects 95% of awarded settlements within six months of resolution showcases strong collection efficiency, making it more appealing to funders.
- A firm with numerous unresolved cases or delayed recoveries may face challenges as funders prioritize efficiency and reliability.
Firms should provide documentation, such as recovery timelines, success rates, and details on the collection process, to demonstrate their capability.
Strong Legal Merit Required
The legal merit of your cases is a fundamental criterion for funders. They assess win rates, precedent strength, and jurisdictional track records to gauge the likelihood of success.
Firms with well-prepared, meritorious cases supported by strong evidence and legal arguments are far more likely to receive funding. Highlighting key cases with substantial legal merit can significantly improve your funding prospects.
Key Factors for Legal Funding Approval
Litigation funders evaluate several critical factors when assessing funding applications. Firms must demonstrate their ability to manage risks, optimize resources, and achieve favorable case outcomes. A strong application improves the likelihood of securing third-party litigation funding with favorable terms.
Key factors funders consider include:
- Case Portfolio Strength: Funders assess the quality and diversity of your case portfolio, focusing on legal merit, potential damages, and case viability.
- Financial Metrics: Detailed financial statements, including income projections and cash flow, help funders gauge your firm's financial stability and recovery potential.
- Operational Efficiency: Firms with streamlined processes, strong risk management practices, and an efficient team are more appealing to funders.
- Market Positioning: A well-established reputation and expertise in high-value practice areas improve your firm’s credibility and funding prospects.
- Documentation Preparedness: Critical documents such as case summaries, projected recovery values, and evidence of successful outcomes must be readily available.
- Performance Benchmarks: Metrics like win rates, recovery percentages, and case resolution timelines are closely scrutinized to determine your firm's ability to deliver results.
Understanding these factors and addressing any weaknesses beforehand can strengthen your application and position your firm as a reliable candidate for third-party litigation funding.
FAQs
Will funders want to see my financial records?
If the funding is structured as case-specific non-recourse funding, the funder will unlikely require financial records. However, if you seek personally guaranteed funding, you will be required to provide financial records. Regardless of the type of loan, having good financial reporting can only improve your likelihood of obtaining funding.
What case documents should I prepare before contacting a litigation funder?
You should prepare comprehensive documentation, including case summaries, evidence of legal merit, projected damages, litigation budgets, and any relevant precedent or expert opinions. This helps funders assess the viability of your cases.
What minimum claim value do funders require?
Minimum claim values vary by funder, but they generally prefer cases with potential recoveries of at least $1 million or more, depending on the jurisdiction and complexity of the case.
What types of litigation do funders typically reject?
Funders usually avoid cases with low damages-to-cost ratios, speculative claims with weak legal merit, or those involving high levels of uncertainty, such as untested legal theories or uncollectible judgments.
How long does the funding approval process take?
The approval process can take anywhere from a few weeks to several months, depending on the complexity of the cases, the completeness of your documentation, and the funder’s due diligence requirements.
