How Does The Pre-Settlement Funding Process Work?
Lawyers are increasingly recommending pre-settlement funding to their clients. If your plaintiff is in line to receive a settlement for a personal injury (or other case), they’ll likely struggle with their financial needs in the meantime. Considering it takes months, or even years, for cases to resolve, this can be both stressful and discouraging.
With pre-settlement funding, you can help clients get immediate access to cash. Once their application is approved, they’ll receive a digital check or direct deposit for a portion of their projected settlement and be able to spend the money however they choose. Later, when the settlement hits is finalized, they can pay back the loan, plus any fees.
Overall, it means your clients are happier and less stressed – and you’ll have more time to negotiate as well.
Some of your clients may be apprehensive about the process of applying for funding, however. They may have privacy concerns, or they may worry that the application process is long or cumbersome. They may even be afraid of getting turned down because of a low credit score or checkered financial history.
So what exactly do pre-settlement funding providers check when evaluating applicants? And what information will they need to provide?
What Pre-Settlement Funding Providers Care About
Pre-settlement funding is, in many ways, like a loan. Lenders provide capital to borrowers with the expectation that they’re going to pay it back in the future. But there are a few differences between pre-settlement funding and typical loans.
First, pre-settlement funding is contingent on an expected settlement. The payback of the loan doesn’t depend on a business generating revenue, nor does it depend on a borrower making a certain amount of money. Instead, the only thing standing in the way of repayment is the settlement not arriving.
Second, most instances of pre-settlement funding function as non-recourse loans. This means that if the borrower doesn’t receive a settlement, they don’t owe anything to the lender.
Accordingly, the number one priority of applicant evaluation is determining the odds of the applicant eventually receiving a settlement. This has a few interesting effects. For example, pre-settlement funding providers typically don’t care about an applicant’s credit score, financial history, salary, or other variables that are a high priority for conventional lenders. They also need to do some investigating to figure out the strength of the case and the size of the projected settlement; if the case is weak or if the size of the settlement is too small, the application may be denied.
Personal Information That’s Required for Pre-Settlement Funding
Different providers may have different standards for the information they collect. However, most applications will follow the same general format.
You can check out our application here to see firsthand how it works.
At Capital Now Funding, we ask for the following:
- First name and last name. It’s standard to ask a person’s name on this type of application for identification purposes.
- Email address and phone number. Contact information is required to get in touch with the applicant.
- State of residence. Different states sometimes have different regulations. This also helps verify the law firm of record.
- Law firm name. We also need to know the name of the law firm representing the applicant, so we can gather more information on the case.
After getting this initial information, we will want to get a few details about the accident, injuries, and treatment from the client. The application is free to submit, with no processing fee. Note that we don’t collect any information on an individual’s credit score, income, debts, or financial history.
There is one other important step that applicants need to take. They need to give you, their lawyer, permission to speak with the pre-settlement funding provider. It’s important for lenders to have a conversation with the lawyer representing the case so they can get a feel for the odds of victory (and the projected settlement amount).
Is Pre-Settlement Funding Right for Every Client?
For some plaintiffs, pre-settlement funding is a practical necessity. For others, it may not be worth the hassle. Before recommending pre-settlement funding for your client, consider the following:
- The projected settlement. How much of a settlement are you expecting from this case? If the plaintiff’s injuries are minimal and the incident didn’t disrupt their life much, they may not be owed much money – which means the pre-settlement funding won’t be much help, and the amount provided will be small.
- The length of the case (and settlement receipt). How long do you expect the case to take to resolve? And how long before your client will receive their settlement? This can be tricky to estimate, especially if you don’t have all the details of the case yet or if you’re still in negotiations. That said, the longer the duration, the more essential pre-settlement funding becomes for your client.
- Current financial situation. What kind of financial situation is your client in? Are they out of work and facing mounting medical expenses? Or are they comfortably living on their personal savings while still able to work part-time? Some clients will definitely need the money more than others.
- Stress and personal disposition. You’ll also need to think about your client’s stress levels and personal disposition. Do they always seem tired and worried about the future? Do they have a lot of anxiety about the case? If so, pre-settlement funding could provide them an immediate sense of relief and renewed confidence. Clients who already feel comfortable may not benefit as much.
It’s also important to help your client understand exactly how pre-settlement funding works, and to caution them against certain types of funding. For example, you might advise your clients to seek a pre-settlement funding provider that charges a predictable fixed fee, rather than a compounding interest rate.
Pre-settlement funding isn’t a perfect solution, but it can help your clients get their money sooner, relieve stress, and buy more time with which to negotiate. If you want to give your clients the best possible experience, and serve them better, connect them to Capital Now Funding – or contact us with any questions you have!