7 Reasons Why Many Lawyers Overlook Lawsuit Funding
Most personal injury lawyers know that lawsuit funding exists – and that it can help clients who are struggling financially. But some lawyers rarely recommend lawsuit funding because they have personal objections to it (and because they want to protect their clients’ best interests).
But what exactly are the common objections to lawsuit funding, and are they truly relevant?
The Basics of Lawsuit Funding
Despite a long history of helping clients get their settlement money early, many lawyers aren’t familiar with the basics of lawsuit funding. Lawsuit funding goes by a variety of different names, including pre settlement funding, settlement loans, lawsuit loans, plaintiff funding, and legal funding.
No matter what you call it, it typically works the same way. A client expecting a settlement for a personal injury, slip and fall, workers compensation or medical malpractice case can apply for a loan. If approved, they get immediate funding of an amount less than their expected settlement. Usually 10% – 20% of the expected settlement value. From there, they have the power to use this money however they want; most use it to cover bills and other important expenses.
If the settlement fails to arrive, the client owes nothing. Otherwise, they’ll be responsible for paying the loan back when the settlement money comes in – plus an additional fee. While some lenders charge a compounding interest rate (which can sharply increase the amount of money your clients have to pay back), Capital Now Funding only charges a one-time fee. Capital Now Funding also never charges interest so the payoff is fixed for the life of the case, keeping the loan inexpensive for clients.
The Top Objections to Lawsuit Funding
These are some of the top objections lawyers have to lawsuit funding:
1. My client doesn’t need funding. In some cases, your clients are doing just fine financially. They don’t need the extra financing because of some combination of the following: they may be able to keep working their job, meaning they’ll have a steady stream of income. They may have ample personal savings, allowing them to cover their expenses as they wait for the settlement. Or they may have minimal or no personal expenses, meaning they’re not in a compromised financial position. It’s also possible that the case will close quickly enough that the loan will be unnecessary.
However, it’s wrong to assume that your clients don’t need the funding. Many people overstate their financial position, or avoid complaining about expenses, because they don’t want to be a bother. Even in a decent financial position, your clients may benefit from a quick injection of cash. On average, most Americans have less than $5,000 in savings and many have much less. Don’t assume that a personal injury accident won’t add unexpected expenses and stress to your clients. A small settlement loan may be just what your client needs to get back on their feet.
2. The interest rates are too high. It’s definitely true that some lending providers charge a high interest rate – and thanks to the power of compounding interest, even a modest interest rate can quickly escalate the amount of money your clients owe.
This is especially true if it takes a long time for the case to settle or if a handful of bad financial decisions render your clients unable to pay the loan back right away. In a bad situation, a high interest rate can devastate your client’s finances permanently.
However, not all lawsuit lending providers charge a high interest rate and some don’t use interest-based charges at all. In fact, Capital Now Funding charges clients a fixed fee, so they know exactly what they’re going to owe at the end of the exchange.
3. Lawsuit funding is predatory. There are predatory loan providers throughout the financial sector; it’s not exclusive to lawsuit lending. And it’s certainly true that some predatory lawsuit loan providers exist. They take advantage of clients in financial distress and attempt to hide their strict terms and conditions.
But many modern lenders emphasize transparency, honesty, and value in their work. They’re clear and upfront with the terms and conditions of the loan, they charge a fair amount for the loan, and they’re willing to work with people to make sure they get value from the funding. Only a small fraction of lending providers can be considered predatory.
4. I can’t afford to take a risk like this. You don’t want to stake your reputation on a financial product that may or may not pan out for your client. But your main job as a lawyer is to help your client win a settlement; it’s their responsibility to figure out their finances.
The risks you face are minimal, and the potential upside for your clients is huge. Yes it is your job to focus on the lawsuit and not the settlement but but when you have clients that are in dire financial straits, if you don’t help them get relief, their financial problems could jeopardize the outcome of your case.
5. We don’t know the outcome of the case yet. As a lawyer, it’s your responsibility to set reasonable expectations with your clients. If you didn’t think the case was worth pursuing, you wouldn’t have taken the case – but that said, you may have doubts about how much of a settlement your clients will receive, or what it will take to get there.
If you’re uncertain about the outcome, it makes sense that you would be apprehensive about recommending legal funding. However, many lending providers only require borrowers to pay back the loan if they receive a settlement. The worst-case scenario is that your client won’t be approved for a loan, in which case, they’re only out a bit of time. You’ll never be in a position where the lack of a settlement leaves a client with extra debt.
6. Lawsuit loans are unregulated. Lawsuit loans are typically unregulated – or regulated minimally compared to other financial products. The mortgage industry is heavily regulated, limiting what banks can do and generally protecting consumers; but these protections don’t extend to legal funding.
While this can be cause for concern, it just means you need to do your due diligence before choosing a lending provider – so you can ensure you’re working with someone trustworthy. In recent years, states have started to regulate the legal funding industry. As a result, more and more protections and guardrails are being added, reducing the chance that your clients will be taken advantage of.
7. Reputable lenders are hard to find. Enough said, we agree, but it isn’t impossible!
If you’re going to recommend lawsuit financing for your clients, you’ll want a reputable lender that you feel good promoting. And with so many ways legal funding can go wrong, you may not feel good about your chances. However, many modern settlement lenders pride themselves on transparent, valuable services – so it shouldn’t take much effort to find a good fit for your firm and your clients. Remember, Capital Now Funding is the only company that provides settlement loans with zero interest and payoff that is fixed for the life of the case. You can’t get more transparent than that!
It’s true that lawsuit funding isn’t the right move for every client or every case. But in many situations, it can ease your client’s financial stress while making both of your lives easier. For more information, or to help a client apply, contact Capital Now Funding today!