Is Pre-Settlement Funding Right For Your Case?
If your injury has left you unable to work or your case requires substantial resources to move forward, pre-settlement funding could help cover immediate financial needs. But before you approach a funding company, it’s worth learning how litigation financing works—and considering the ethical concerns that can come with it.
What Is Pre-Settlement Funding?
This type of funding is known by several names, including lawsuit loan, legal financing, settlement funding, or third-party funding. They all refer to the same concept: upfront money provided to a plaintiff while their case is still pending. There are scenarios where this type of funding may be helpful:
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To cover living expenses and financial obligations while the case is still pending
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To avoid settling too early for less than the case may be worth
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To fund a more thorough investigation that could lead to a higher payout
How Does It Work?
Financial firms provide funding to plaintiffs while their cases are still pending. These are known as non-recourse loans, which means if the plaintiff loses, they don’t have to repay the money. Because the lender only gets repaid if the case results in a favorable verdict or settlement, pre-settlement funding companies are selective about which cases they take on.
Because these are non-recourse loans, lenders typically charge higher rates to offset the risk. Some companies apply a flat fee to the total loan amount, while others charge monthly interest, sometimes as high as 15% per month.
The Procedure
Here’s how the process typically works: You and your attorney decide that pre-settlement funding could help cover personal expenses or support the case. You apply through a funding company, which then contacts your lawyer to evaluate the strength of your claim. Based on the details provided, they estimate the potential value of your verdict and present an offer, including their fee structure. If you agree, the funds are usually deposited within a few days.
Let’s say the case continues for another four months. If you win and the verdict meets expectations, the settlement funds are first used to repay the financing company. After legal fees and the funding costs are deducted, you receive the remainder. If you lose, you owe nothing—the lender doesn’t get repaid, and neither does your attorney. If you win but the verdict falls short of what the lender expected, you’re still only responsible for the amount awarded. You’ll never be required to pay more than what the court grants you.
When Should You Get A Pre-Settlement Loan
In most personal injury cases, attorneys work on a contingency fee basis. That means they cover legal costs up front and only get paid if they win your case. However, they are not allowed to pay for your living expenses or medical bills, as doing so would create a conflict of interest under professional conduct rules.
Personal injury cases can take years to resolve, and serious injuries may keep you out of work while medical costs pile up. In situations like that, pre-settlement funding may offer short-term financial relief.
Before applying, talk with your lawyer and consider all available options. Depending on your situation, you might be eligible for workers’ compensation, disability benefits, or unemployment insurance, which could be a safer and less expensive alternative.
Because the costs can add up quickly, pre-settlement funding should generally be viewed as a last resort.
If you decide to move forward, compare multiple companies. Look for one with a clear fee structure, a solid reputation, and the most competitive terms you can find.
The content on this website is for general informational purposes and should not be considered legal advice. Laws change, and case outcomes depend on specific facts. Viewing this material does not establish an attorney-client relationship. For legal guidance on your specific situation, consult a qualified attorney.