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What Are the Different Types of Legal Funding?

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  • Written By: C. Mitchell
  • Edited By: John Allen
  • Last Modified Date: 30 November 2016
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There are many different types of legal funding — funding for plaintiffs, for defendants, and even for law firms, depending on the circumstances. One of the most well-known types of legal funding is legal aid funding, which is public or non-profit money dedicated to helping impoverished people defend their rights in court. Private legal funding is also available through lending firms for parties awaiting settlement, or for people who want to file a lawsuit but lack the capital upfront. Some legal funding is targeted at lawyers, particularly those in contingency fee-based practices who may need money to cover operational expenses while waiting for court awards and payment.

Lawsuits are typically very expensive undertakings. Hiring lawyers can be quite costly, and even just filing a case is rarely cheap. Parties can wait months or even years for settlements or final rulings. Legal funding can provide flexibility and access to the courts for people who might not otherwise be able to afford it.

In the non-profit sector, public legal aid funding can help low income individuals bring or defend lawsuits. Legal aid clinics are prevalent in many communities, and offer legal counseling and representation to certain clients. The funding for these operations often comes from tax dollars and charitable grants.

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Private lawsuit funding organizations typically work a little bit differently. While a legal aid group will counsel and ultimately represent clients for either no fee or a seriously reduced fee, private funding groups work more like lending agents. They provide financial backing for a legal action, but are not themselves involved in how that action is brought or defended.

Litigation funding for individuals and businesses usually comes in the form of a cash advance. People who are involved in on-going lawsuits can apply for legal funding through these lenders when it looks like they will be getting a settlement, but that settlement is not likely to be realized for quite some time. This kind of funding is usually designed to help people continue to pay lawyer’s bills and legal fees while waiting for a final decree. Most of the time, these services are designed for plaintiff funding, but they can also sometimes be used by defendants. Much depends on how likely it is that the party is going to be recovering enough money to make the initial funding investment worth it to the lender.

Some law firms also apply for legal funding from private lenders. Attorney funding is most common in the plaintiff’s rights sector. In many places, it is common practice for plaintiffs’ lawyers to gain clients by promising services on a contingency basis. This means that they lawyers will not be paid until the court issues a final settlement. Such an arrangement is usually advantageous for plaintiffs, but can be financially straining on the firms.

Until a firm is well-established with a large amount of capital, it may have trouble footing all the bills and keeping its staff employed while waiting to be paid. Legal funding can help firms in this type of situation expand their business and take on more clients at a time. The terms and rates of law firm legal funding are usually quite different from private litigant funding. For this reason, legal funding ventures typically only focus on one type of client.

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