Coming Up With the Funds: How Litigation Funding Companies Work
The rise and rise of litigation funding is well-documented, with many countries seeing an increase in third party funders in the marketplace. However, to some, the option of litigation funding is still a new concept.
What is litigation funding?
Litigation funding is the act of approaching an investor (in this case, a third party funding company) to apply for funding to support a court case. These litigation funding companies usually only take on cases that have some kind of monetary reward at the end and the majority focus on commercial disputes.
If a client is approved, the litigation funding company provides them with the money required to follow the case through to completion. If the case is won the client keeps their percentage of the damages while also providing the litigation funder with its original investment (the exact loan amount) and its return on investment (its fee for funding theclient, which is usually calculated at around 30% of the full reward).
How are cases chosen?
The litigation funding company will go through a rigorous vetting process to ascertain how good the odds are for a winning verdict. If the case isn’t strong enough the company probably won’t fund it, as there is too much risk involved. The last thing any third party funder wants is to invest so much capital only to lose it all.
An estimated 85% of all cases are rejected by litigation funding companies as they are seen as too risky to take on.
What is the return on investment (ROI)?
The return on investment is the amount of money that the litigation funding company takes as its fee for providing the client with money throughout the case. The total amount of the ROI is determined on a case-by-case basis, as it all depends on the level of risk involved, how much money was invested and so on.
Generally though, most litigation funding companies expect a 25-45% financial return.
Litigation funding companies can be invaluable to big businesses and law firms that require funding for lengthy and costly court cases.
This article was provided by Aurora Johnson on behalf of Vannin Capital, a commercial litigation funding specialist. Interested in writing a post for Well Kept Wallet? Check out our guest post guidelines.