Litigation Finance for Law Firms
Here are a few reasons why a law firm may want to consider litigation financing:
Financing allows lawyers to compete for business that they otherwise would not be able to handle. Many law firms are not set up to offer contingent-fee arrangements.
When a law firm litigates for a client on a contingency basis or with a discounted billing agreement, the matter can quickly become very costly for the firm. And without a significant war chest, firms may struggle to pay ongoing operating expenses while waiting years for contingent fees. Law firm funding allows the law firm to offer contingent-fee arrangements to clients without sacrificing the cash flow required to pay operating expenses.
Financing helps to reallocate the risk of contingent-fee arrangements.
Financing is flexible enough to allow law firms to create “hybrid” arrangements where most of the cost of litigation is financed. The law firm offers a small discount on its standard “rack” rates during the litigation in exchange for a modest success fee should the litigation prove successful. This arrangement gives the law firm the potential to recover more than 100% of its rack rates without having to take on significant risk for that potential upside.
Financing can allow law firms to invest in their future.
If a law firm is considering opening a new office, bringing in new talent, or improving its marketing efforts, it will need capital. With financing, the law firm can grow, add clients, and stay competitive in the marketplace, while satisfying its ongoing operating expenses.
Financing can make cash flow more predictable.
Litigation funding can offer law firms a steady stream of revenue to pay expenses associated with either a case or the firm. It can also help if the firm has an unanticipated need for capital.
Litigation finance can be used as a law firm business development tool.
As more clients ask for alternative fee arrangements, an understanding of various litigation finance options can help a law firm craft a fee proposal that is more likely to appeal to the client and win the work.