What Legal Funding Companies Actually Do
A legal funding company gives you money before your lawsuit settles, betting that you will win and repay them from the settlement. They are not lenders—they do not require you to repay if you lose. What they do require is a cut of your settlement, usually between 25 and 50 percent of what they advanced, plus their fees.
The company evaluates your case the same way a court would: they look at liability (whether the defendant is clearly at fault), damages (how much money you might recover), and the defendant's ability to pay. A strong case—one where liability is obvious and damages are high—gets funded faster and at a lower cost to you. A weaker case may be declined or offered at a higher percentage.
The trade-off is real. You get money now to cover living expenses, medical bills, or attorney fees while your case moves through court. In exchange, the company takes a percentage of your final settlement. If your case settles for $100,000 and the company advanced $15,000 at a 40 percent rate, they take $6,000 of your settlement (40 percent of $15,000), leaving you $94,000.
Key Takeaways
- Legal funding companies advance money against your future settlement and take a percentage of that settlement as repayment, not a fixed interest rate.
- The percentage you pay depends on how strong your case is, how long funding is outstanding, and the company's assessment of risk.
- Reputable companies require a signed retainer agreement with your attorney, a detailed case evaluation, and clear written terms before advancing any money.
- Comparing offers means looking at the advance amount, the percentage they take, how long they will fund you, and whether they charge process or evaluation fees.
- Your attorney should review any funding agreement before you sign, because the terms affect how much of your settlement you keep.
How to Compare Offers from Different Companies
When you receive an offer from a legal funding company, you are comparing three main variables: the amount they will advance, the percentage they take from your settlement, and the timeline they will fund you for. A company that advances $10,000 at 30 percent is not automatically better than one offering $15,000 at 40 percent—it depends on how long your case will take and how much you need now.
Ask each company for a written offer that spells out the advance amount, the percentage rate, any fees (some charge process fees, evaluation fees, or monthly service charges), and the conditions under which they will stop funding. Some companies will fund you for the entire duration of your case; others cap funding at 12 or 24 months. If your case is expected to take three years, a company that stops funding after two years may leave you short.
Check whether the company requires your attorney's involvement. Reputable companies will not fund you without a signed agreement from your attorney confirming the case details and the attorney's willingness to work with the funder. This protects you because it means your attorney has reviewed the terms and agreed they are reasonable.
Red Flags in Funding Agreements
Some funding companies use terms that can cost you far more than the stated percentage. Watch for agreements that charge you a percentage of the advance amount each month the funding is outstanding—this compounds over time and can double or triple what you owe. A $10,000 advance at 3 percent per month costs you $300 in month one, but if your case takes two years, you will owe far more than the stated rate suggests.
Avoid companies that require you to sign a power of attorney giving them control over your settlement. Legitimate funders take their cut from the settlement check; they do not need control of your funds. If a company insists on this, walk away.
Read the section on what happens if you lose your case. Most legitimate funders will forgive the debt if you lose, but some require you to repay a portion anyway or charge you a "non-recovery fee." These terms shift the risk back to you and defeat the purpose of non-recourse funding. Ask your attorney whether the terms are standard in your state.
Questions to Ask Before You Sign
Contact the company's underwriting department and ask for a detailed explanation of how they calculated the percentage rate. They should be able to tell you whether the rate reflects the strength of your case, how long they expect to fund you, or both. If they cannot explain it clearly, that is a sign they are not being transparent.
Ask whether the advance amount is final or whether they will fund additional money if your medical bills increase or your case takes longer than expected. Some companies will advance more; others will not. Knowing this upfront prevents surprises later.
Confirm in writing what happens if your attorney changes, if you settle with one defendant but the case continues against others, or if you receive a partial settlement before the case ends. These scenarios happen often, and the agreement should address them. If it does not, ask the company to clarify in writing before you sign.
How Your Attorney Fits Into the Funding Process
Your attorney is your first filter. Before you approach a funding company, talk to your attorney about whether funding makes sense for your case. An attorney who has handled similar cases knows roughly how long yours will take and whether the settlement is likely to be large enough to justify the cost of funding.
Your attorney will also review any offer you receive and advise you whether the percentage is reasonable for your type of case. Percentages vary widely by case type—personal injury cases often have lower rates than medical malpractice or product liability cases, because the risk profile is different. Your attorney knows what is standard in your jurisdiction.
Once you are funded, the company will contact your attorney's office to confirm the case details and to arrange payment when the case settles. Your attorney's office will hold the settlement funds and coordinate with the funder to deduct their cut before sending you the remainder. This is routine; most plaintiff attorneys work with funders regularly.
What Happens When Your Case Settles
When your case settles, your attorney receives the settlement check. The funder sends an invoice to your attorney's office stating the amount owed (the advance plus any accrued fees). Your attorney deducts this amount from your settlement and sends it to the funder. You receive the remainder.
This process usually takes one to two weeks. The funder has no claim on your settlement beyond what is stated in the agreement, so if the settlement is smaller than expected, you do not owe them more. Conversely, if the settlement is larger, they do not receive more—they take only what the agreement specifies.
If your case is dismissed or you lose at trial, you owe the funder nothing. This is the core of non-recourse funding: the company absorbs the loss. This is why they are selective about which cases they fund and why they charge a percentage rather than interest.
Comparing Funding to Other Options
Before you commit to legal funding, consider whether you have other options. Some attorneys will advance costs (filing fees, informed witness fees, court reporter fees) directly from the settlement, which costs you nothing upfront. Ask your attorney whether this is possible in your case.
If you need money for living expenses rather than case costs, a personal loan or credit line may be cheaper than funding if your case will settle quickly. However, a personal loan requires you to repay regardless of the case outcome, which is riskier. Funding only requires repayment if you win.
Some cases may have access to for settlement loans, which are similar to legal funding but structured differently. A settlement loan is typically smaller, covers a shorter timeline, and charges interest rather than a percentage. These work well if you need a small amount of money for a short period. Your attorney can tell you whether this option exists in your state.
Frequently Asked Questions
Can I use legal funding to pay my attorney's fees?
Yes. Many people use legal funding to cover attorney fees, especially if their attorney works on contingency and the case is taking longer than expected. The funder does not care what you use the money for—they only care that your case is strong enough to repay them from the settlement.
What if I want to settle my case quickly but the funder wants to wait?
The funder has no say in whether you settle. You and your attorney decide when to settle. If you settle, the funder takes their cut and the relationship ends. The agreement does not give the funder veto power over settlement decisions.
Do I have to tell the other side that I am using legal funding?
No. Legal funding is between you, your attorney, and the funder. The other side does not need to know, and you are not required to disclose it. Some attorneys choose to mention it during settlement negotiations as a way to explain why you are not desperate to settle quickly, but this is optional.
What if the funder goes out of business before my case settles?
The funder's obligations transfer to whoever buys their portfolio or to their creditors. Your agreement remains valid and enforceable. You will be contacted by the new owner or administrator and told where to send settlement funds. This is rare but does happen; it does not affect your rights.
Can I get funding from multiple companies?
Yes, but each funder will want to know about the others. Most funding agreements require you to disclose other funding you have received, because the funder needs to know how much of your settlement is already committed. Some funders will decline to fund if you are already funded by a competitor; others will fund anyway. Be transparent about this upfront.