Several years ago it was almost unheard of, yet now it’s all the rage. In short, litigation funding is grabbing all of the headlines and it’s for very good reason.
For those unaware, litigation funding is a situation where a third party funds the cost of a claim. Of course, there’s a huge caveat here, with said party also receiving a share of the damages if the claim proves to be a success.
The previous paragraph should hopefully explain why this is proving to be such a popular method for so many people. At the same time, this popularity is opening up other problems. A lot of misinformation has hit the internet, and out of this a lot of myths have been unearthed.
Bearing this in mind, today we have spoken to Ron Blum to delve into his experience on the subject. We will now explore some of the big misconceptions which have arisen from litigation funding, to hopefully provide a more accurate picture.
Myth #1 – If a person can afford their own legal costs, they don’t need litigation funding
This sounds almost nonsensical, but give us time.
Sure, most people who are turning to this method of funding are doing so because they are unable to front their own legal costs. They are not the only group though.
Some companies have been known to turn down litigation for the simple reason that it doesn’t act favorably on their balance sheet at that moment in time. As such, obtaining funding from another source makes perfect sense, and means that their main business doesn’t necessarily have to suffer in a bid to pay the legal fees.
Myth #2 – The industry is dangerous
When we speak about “danger”, we’re referring to the fact that this funding is unregulated. In other words, absolutely anyone can be classed as a litigation funder and there is no authority who is going to question them.
Unfortunately, there is little that we can do to comfort people who are concerned about the above. All that can be said is that this is an industry worth billions of dollars and as such, while there might be some unscrupulous individuals out there, on the whole it’s very much above board and helping a lot of people.
Myth #3 – This form of funding is expensive
This is one of those scenarios when it’s all relative. In other words, what might be expensive to one person or company certainly isn’t going to be the same for another. In general, to throw a ballpark figure into the equation, most funders will expect to receive around three times their initial investment. This means that most people will only turn to litigation funding if they know that they are going to receive around five times as much back in a successful case.
Following on from the above, it can be concluded that funding is expensive in some cases – which is why most companies will pick and choose this option wisely.