When to Use Litigation Funding for Business Law Litigation
A growing company supplies high-quality plastics to a manufacturer for use in packaging materials. Millions of dollars are at stake. But the large-scale international manufacturing company is not paying the bills and returning the plastics.
The CEO of the plastics company plans to meet with a lawyer, but of a caliber ready to fight a Goliath. After all, the international manufacturing company maintains a recognized law firm with teams of attorneys.
The business owner soon learns that reviewing the case may require a retainer of $250,000; superior legal representation may charge $1,000 per hour.
Large companies can prolong the litigation process, knowing that time is not on the side of small companies. Legal fees will continue to accumulate if the case takes years.
The CEO knows advancing legal claims will quickly drain his coffers as he tries to juggle day-to-day business and relationships with other, more responsible clients. It may need to start dipping into operating accounts and budgets to stay afloat.
The plastics business owner might consider litigation funding.
What is Commercial Litigation Funding?
Some attorneys who believe the merits of the case are sound, but know their clients’ track records are not, refer their commercial clients to moneylenders. However, clients find and make contact with most commercial litigation funders.
Commercial loans are not real loans, but non-recourse advances. These advances can be as small as $50,000 or $100,000 up to $20 million. A non-recourse advance means that clients receive a lump sum, but repayment of the advance depends on the case.
Commercial litigation funding helps companies with legitimate claims that would never see their way to court because they have been shut out of the legal system. There are so many businesses that don’t have access to the justice system simply because they don’t have the money to continue.
With litigation, even the smallest law firms can tackle complex business cases, expanding access to justice. This is especially relevant today as some large corporations use the courts and bankruptcy proceedings as protection against claims.
Some lawyers are unsure whether funders are getting involved in ongoing legal proceedings or settlement talks or interfering in the client-attorney relationship. Commercial litigation funders find good cases with strong arguments, then walk away. Commercial Dispute Funders are not involved in the settlement or any other ongoing aspect.
How the commercial litigation funding process works.
Each commercial litigation funding process and its outcome is exceptionally unique and assessed on its own merits – no two are the same. Loan applications are reviewed based on claims, damages incurred and expected settlement amount.
Commercial litigation firms tend to be more cautious and carefully review each case. If they think the deal isn’t right for them, they may be able to steer business clients and their legal team to a new source of funding.
Typically, the funder reviews the documents and engages in conversations with the clients and their attorney, then offers a term sheet outlining the rate and cost of the money. Conditions may depend on the risk level of the case, the value of the case and the likelihood of recovery. Typically, the number is expressed as a percentage per year or per semester and earns interest every six months. Many loans are capped at 3 years, after which interest ceases to accrue.
The speed of funding depends on the details of the deal. Simpler cases could see funding within 24 hours. In general, funders tend to investigate business cases closely, doing their due diligence. Commercial litigation funding could occur between 30 and 90 days after application, making speed essential.
After receiving the cash injection, clients can use the amount for case expenses or just keep their business afloat.
What types of business lawsuits can be funded?
Litigation funding includes matters relating to: breach of contract, international arbitration, international tort, oil and gas disputes, liquidations, breach of contract and anti-trust.
Funding lawsuits cover many sectors, including technology, trade and manufacturing, oil and gas, and the power industry, among others. Some lenders do not work with international cases.
Business lawsuits come to funders in one of a few ways. Sometimes companies contact litigation funders first and ask for guidance moving forward and recommendations from law firms. The best litigation funders develop good relationships with well-established and reputable law firms to provide excellent referrals. For example, commercial litigation firms that excel have good relationships with many of the top litigation firms in the United States.
While commercial litigation funders can expand access to justice, it is essential to understand the rates and terms of any funding agreement. With the right approach, business lawsuit funding can provide a cost-effective method of keeping a business afloat while securing justice.
© 2022 Copyright Tribeca Lawsuit LoansNational Law Review, Volume XII, Number 135