The 8 Misconceptions of Legal Funding

The 8 Misconceptions of Legal Funding

You’ve probably heard about legal funding, even if you don’t recognize the term. Sometimes called pre-settlement cash advances or lawsuit cash advances, these financial products provide immediate financial support to plaintiffs who are having difficulty making ends meet. However, many people have incorrect ideas about how legal funding works.

Misconception #1: Pre-Settlement Cash Advances Must Be Paid Back No Matter What
Pre-settlement cash advances are non-recourse loans, which means if the plaintiff is unable to pay back the advance, the legal funding company cannot go after the balance from the plaintiff. This is true even if the plaintiff loses the case or the amount recovered isn’t enough to pay back the advance.

Misconception #2: Getting a Pre-Settlement Cash Advance Is Too Much Trouble for the Lawyer
Many attorneys are hesitant to help their clients obtain a pre-settlement cash advance because they’re worried it’ll be too much of a hassle. While it’s true the plaintiff’s attorney has to do a bit of paperwork, the process is very streamlined and quick. For example, with Necessity Funding, the plaintiff doesn’t need to go to his or her attorney’s office to sign any paperwork or receive the cash advance. They can usually go to their local financial store to sign paperwork and receive the cash advance.

And don’t forget the peace of mind a pre-settlement cash advance provides the plaintiff. The client is no longer sitting on pins and needles waiting for a settlement that may or may not arrive while bills continue to pile up. This means less time a plaintiff’s attorney has to spend finding ways to help the plaintiff makes ends meet until the case is won or settled, and of course, a lawsuit victory or settlement is never a sure thing.

Misconception #3: Legal funding Companies Only Provide Loans
The cash advances that legal funding companies offer aren’t loans. This is because the plaintiff doesn’t have the money to pay back the cash advance if the case isn’t resolved for as much as anticipated or if the plaintiff loses. The plaintiff isn’t in a worse financial situation (such as having a lower credit score) because he or she is unable to pay back the cash advance.

Misconception #4: It Takes Too Long to Get the Cash Advance
Most legal funding companies can deliver the cash advance in as little as one or two days after applying. In fact, a few companies are even faster. For example, Necessity Funding can get you your money in as little as two hours.

Misconception #5: Legal Funding Companies Have Little Risk
Nothing could be further from the truth! The risk of losing the lawsuit is on the legal funding company, not the plaintiff. As a result, legal funding companies have to be extremely careful in deciding which cases to take on and how much to agree to advance.

Misconception #6: Legal Funding Companies Make Law Firms Less Profitable
The opposite is true. Due to the desperate financial situations many plaintiffs find themselves in, they will accept much smaller settlement amounts in order to get a settlement payment sooner rather than later. By providing plaintiffs the ability to “wait out” defendants and insurance companies and fully develop their case, they’re often able to obtain larger settlements. Since most plaintiffs’ attorneys are paid by contingency fee agreement, this ultimately means more money for the attorney.

Misconception #7: Legal Funding Companies Are Price Gougers
Because the entire risk of losing the lawsuit is on the legal funding company, the interest or fees charged by legal funding companies must be higher than the typical loan. The finance charges of a pre-settlement cash advance must understandably be higher than a typical loan, which is either secured against collateral and/or allows the lender to go after the plaintiff even if they lose the case.

Misconception #8: Plaintiffs Are Better Off Receiving Financial Assistance Directly from Their Attorneys
Most professional ethics rules prohibit attorneys from directly loaning or giving money to their clients except in very limited circumstances, such as only paying for litigation costs. If an attorney were to provide financial assistance to a client to pay for non-litigation costs, whether or not it needed to be paid back, most attorneys would be subject to professional discipline.

Necessity Funding Can Help
Whether you’re a plaintiff in an ongoing lawsuit or an attorney who has a client that’s having financial difficulty, don’t hesitate to contact us by e-mailing us at or by calling us at 1-888-798-4386.