As litigation finance continues to grow, many firms are discovering they can use it as an alternative to taking on debt while maximizing revenue from their portfolio of litigation matters. For example, a law firm with meritorious cases being handled on a contingent fee basis can receive financing for multiple cases at once. This portfolio approach is often more attractive to funders than financing a single case because they can diversify their investment across several cases. It also increases the amount of capital the funder can provide, which can be a substantial benefit to the law firm. The firm can use this funding for overhead and operating expenses or as a means to expand its practice.
Litigation finance is fast becoming a more attractive option than obtaining a traditional line of credit from a bank as the latter often comes with more restrictive terms. And unlike non-recourse litigation funding, where the funder receives a return on its investment only if a case is successful, a bank loan must be repaid no matter the outcome of the case.
Other factors that render litigation finance preferable to taking out a loan are:
Reduced Risk. Taking on debt from a traditional lending institution may require partners to put their personal assets on the line as collateral. With litigation financing, funds are provided on a non-recourse basis and are only repaid if there is a successful recovery. If a case results in an unsuccessful outcome, the firm owes the funder nothing.
The information our experts gather during the due diligence process can help law firms and clients further reduce their risk as well. Essentially, firms and their clients are being given an expert, third-party assessment of the strengths and weaknesses of their case. This can help them validate their current strategy or make necessary adjustments to their litigation approach to help improve their prospects of success. This is a by-product of the underwriting process that most financial institutions could not provide.
Working Capital. Litigation financing provides lawyers and law firms the flexibility to start up or expand their practices without the pressure of taking on debt. From leasing an office to hiring expert witnesses, lawyers face significant costs when they go out on their own. If paying off a bank loan becomes a firm’s most critical goal, the firm may be forced to make decisions that could limit its future growth.
These limitations can hold true for larger, well-capitalized firms as well. For example, an AmLaw 50 firm may want to expand one of its practice areas, but the prospect of taking on more debt or the risk of taking on a contingency case may give partners pause. In this instance, a firm could use litigation funding to help take on a new stream of contingency matters while also using the financing to help fund operational expenses.
Litigation Expertise. Bentham’s investment management team is comprised of lawyers who have come from some of the nation’s most prominent litigation practices. They are experts on the litigation process and understand its unpredictable nature. Bentham also has the ability to finance disputes around the world and an understanding of how firms manage and litigate such complex and large cases.
Compare that to a traditional lending institution that deploys bankers to negotiate and manage loans. They are unlikely to have knowledge of the litigation landscape or of the flexibility firms may need, resulting in requiring firms to strictly adhere to terms that do not reflect the realities of litigation. A litigation funder is far more likely to understand the uncertainties of litigation and roll with the punches.
To discover more about how law firms can use financing, contact us
for a consultation. And visit our Litigation Finance Education Center
to learn about CLEs we offer to companies interested in working with funders. There, you will find our recent podcasts, blog posts and videos.