Pre settlement funding is one of two lawsuit settlement funding methods, in which a person who has filed a compensation case can get funding in the form of a non-recourse loan from a pre settlement funding company on the basis of his or her pending case. already if the settlement or verdict amount is smaller than expected, the amount to be repaid never exceeds the amount of the injured person’s proportion of the verdict. Pre settlement funding involves financing of on-going litigation, instead of buying legal fees after a settlement. The risk is much higher in pre settlement funding than post settlement funding and consequently pre settlement companies expect a much higher return.
A plaintiff in need of money contacts a pre settlement funding company, sometimes on the suggestion of an attorney. The pre settlement funding company contacts the lawyer who is handling the case, and obtains information about the case. On the basis of this information, the loan company assumes the value of the settlement or verdict and offers cash improvement to the injured person. The loan and associated fees are paid to the finance company when the case is settled.
For pre settlement funding, the verdict may take years, which significantly reduces the amount of money that the finance company can pay to the client. The pre settlement funding companies aren’t likely to offer funds to plaintiffs who don’t have strong situations justifying substantial awards.
For avoiding usury laws the funding from pre settlement funding companies are not described as “loans”, but as “cash advances”, “investments” or “venture capital”. Not every state permits pre settlement funding. The Ohio court extremely pre settlement funding saying that the funding could create a disincentive to settle a case, where the plaintiff would have to pay the complete amount of the settlement to the finance company.