6 Ways Litigation Funding Helps Contingency-Fee and Boutique Law Firms

litigation funding officeWhile Big Law firms must consider a variety of factors when taking on new clients and cases, smaller and contingency-based firms often have very different considerations. In order to build reputation and get a practice off the ground, some firms may start off taking cases on a contingency basis. But in doing so, they find themselves strapped financially when they want to expand and grow. And finding clients that are able and willing to pay conventional hourly rates can be difficult at a time when even well-heeled corporate clients are demanding discounted rates or alternative billing arrangements. Some boutique firms may also be forced to forgo taking on cases with a high likelihood of obtaining a substantial recovery if they have to wait months or even years to be paid for their services.

That's where litigation funding can make all the difference. By partnering with a litigation funder, firms can obtain non-recourse capital that can provide the cash flow necessary to sustain the firm, drive growth, and preserve client relationships. If you haven't seriously thought about litigation funding, here are six things you should know:

#1: You can use litigation funding for growth

Growing your practice can be difficult. Unlike corporate businesses, law firm's ability to raise capital is very limited. When clients do not pay on time or when a contingent case drags on longer than expected, firms feel financial operating constraints and rely heavily on bank loans to finance working capital requirements. With litigation financing, you can monetize current or prospective cases in exchange for non-recourse capital to cover operational or investment needs.

#2: You can manage discovery expenses and other costs

Law firms and clients often need to negotiate non-attorney expenses such as discovery and expert witness costs, which can easily reach seven figures. Clients often struggle to pay these expenses. Litigation finance can alleviate the cash burn required to pay these types of expenses, allowing other capital to be used to pay the firm's fees.

#3: You can diversify the fee arrangements in your portfolio

With litigation financing, law firms can be more flexible about the types of fee arrangements they accept. This allows firms who typically do not accept contingency-fee cases to take on such representations without having to assume the financial risks of doing so. It also allows smaller firms to pursue bigger cases with larger expenses that the firm may have to assist the client finance.

#4: You can get improved clarity on the validity of a claim

Because litigation financing is non-recourse, Litigation Funders have to perform intensive due diligence when considering a claim for funding. Clients who retain a funder afford themselves the opportunity to obtain a rigorous analysis of their case before substantial resources have been expended. A funder's acceptance of a claim can be viewed as further validation that it is worth litigating. On the other hand, a funder's refusal to finance a claim offers clients and their counsel another value-added piece of information to take into account when making decisions about whether or not to pursue litigation.

#5: You can get an early case assessment

Funders like Vinson Litigation Finance offer early case assessments as an added-value service to funded clients. This early case assessment can be used to anticipate case vulnerabilities and identify case strengths. Aside from financing, a litigation funder's largest value proposition is providing to counsel and their clients a sophisticated third-party's impartial and critical review of the claims at issue.

#6: You can reduce the financial pressure on your clients

Even if your client has the financial resources to cover the costs of litigation, the prosecution of the claim may still pose a tremendous financial burden to them. When they have the choice, clients may want to work with a litigation funding firm to alleviate these pressures. Funding relationships can be flexible. Funders are able to structure financing arrangements that are best suited for the type of claim being pursued and the client's needs.

Want to learn more? Contact us to find out how litigation funding can transform your practice, your firm and your bottom line.