Litigation Finance 101:
The Complete Guide
Everything attorneys, firms, and plaintiffs need to know about litigation funding.
Litigation finance is one of the fastest-growing sectors in the legal industry, yet most attorneys and plaintiffs have only a surface-level understanding of how it works, who it serves, and why it matters. This guide covers the fundamentals: what litigation finance is, how it operates, who benefits, and what to look for in a funding partner.
What Is Litigation Finance?
Litigation finance, also called third-party litigation funding or legal finance, is the practice of providing capital to parties involved in a lawsuit. A third-party funder, like De Asis Hatchet, provides money to a law firm or plaintiff, typically in exchange for a portion of the proceeds if the case is successful.
The concept is simple:
Legal cases take time, but financial obligations do not wait. Litigation finance bridges that gap by providing immediate capital against future case proceeds.
The industry has grown significantly over the past decade. What was once a niche product used primarily in large commercial disputes is now a mainstream financing tool used by personal injury attorneys, mass tort firms, and individual plaintiffs across the country.
How Does Litigation Finance Work?
The basic mechanics vary depending on who is receiving the funding:
For Law Firms
A law firm applies for funding, providing information about their cases, firm operations, and capital needs. The funder evaluates the strength of the firm's caseload and, if approved, provides capital under agreed-upon terms. Repayment may be tied to specific case outcomes (non-recourse) or to the firm generally (recourse), depending on the product type.
For Plaintiffs
A plaintiff with a pending case applies for a pre-settlement advance. The funder evaluates the case's liability, damages, and insurance coverage. If approved, the plaintiff receives a cash advance that is repaid from the eventual settlement. If the case is lost, the plaintiff owes nothing (non-recourse).
Key distinction: Pre-settlement advances for plaintiffs are not loans. They are non-recourse purchases of a portion of a potential future settlement. This distinction has important legal and regulatory implications.
Types of Litigation Finance
Pre-Settlement Funding (Plaintiff Advances)
Cash advances are provided to plaintiffs awaiting settlement. Amounts typically range from $500 to $100,000. No credit check required. Repaid only from settlement proceeds, so you owe nothing if you do not win your case.
Case Cost Financing
Capital is provided to law firms to cover specific case expenses: expert witnesses, depositions, court fees, medical records, investigation and discovery costs. Repayment is typically tied to case resolution.
Docket Financing
Portfolio-level funding is tied to a firm's overall caseload rather than a single case. The funder evaluates the aggregate strength of the firm's pending cases and provides capital accordingly. Designed for firms managing multiple active matters.
Attorney/Firm Funding
Direct capital for law firm operations: hiring, marketing, technology, office expansion. May be non-recourse (tied to case outcomes) or recourse (personally guaranteed), depending on the structure.
Revolving Credit Lines
Flexible capital that firms can draw from, repay, and reuse. Similar to a business line of credit, but designed for the rhythms of contingency-fee practice. Most credit lines are recourse.
Who Uses Litigation Finance?
Personal Injury Law Firms
Contingency-fee firms carry all case costs upfront and only get paid when cases resolve. Litigation finance provides working capital during the months or years between case intake and settlement.
Mass Tort and Class Action Firms
High-value, long-duration cases require sustained investment. Docket financing and case cost capital allow firms to enter and maintain positions in complex litigation without exhausting reserves.
Solo and Small Firms
Smaller practices often lack the reserves to carry multiple cases simultaneously. Case cost financing allows them to take on stronger cases they might otherwise decline due to cash flow constraints.
Individual Plaintiffs
People injured through no fault of their own need financial stability while their cases are resolved. Pre-settlement advances prevent plaintiffs from accepting lowball settlement offers driven by financial desperation.
Understanding Non-Recourse Funding
Non-recourse is the defining feature of most plaintiff-side litigation finance and some law firm products. It means the funder absorbs the risk: if the case is lost, the money does not need to be repaid.
This is fundamentally different from a traditional loan, where repayment is required regardless of outcome. Non-recourse funding aligns the funder’s interests with the client’s interests. Both parties benefit only if the case succeeds.
Important nuance for attorneys: Not all law firm funding is non-recourse. Credit lines and some operational funding products may require personal guarantees from managing partners. Always confirm the recourse structure before signing.
What to Look for in a Litigation Finance Partner
Transparency
Industry Experience
Speed Without Pressure
Alignment of Interests
Glossary of Terms
Non-Recourse
A funding structure where repayment is required only if the case wins. If the case is lost, the recipient owes nothing. The funder absorbs the risk of an unfavorable outcome.
Cost of Capital
The total amount paid above the original funding amount. In litigation finance, this replaces the concept of “interest” and is typically expressed as a multiple or flat rate rather than an APR.
Due Diligence
The process a funder follows to evaluate the strength of a case or portfolio before approving funding. This includes reviewing case merits, liability, damages, and expected timelines.
Case Merit Evaluation
Assessment of whether a case has a reasonable probability of success. Funders look at liability clarity, damages documentation, insurance coverage, and litigation stage.
Recourse Funding
A funding structure in which the recipient is personally responsible for repayment regardless of case outcome. Common in operational credit lines for law firms.
Docket/Portfolio
A law firm's collection of active pending cases. Docket financing is funding secured against the aggregate value of this portfolio rather than a single case.
Underwriting
The evaluation and approval process a funder uses to determine funding eligibility, amount, and terms. In litigation finance, underwriting focuses on case strength rather than credit history.
Ready to Explore Your Options?
De Asis Hatchet was founded on the belief that litigation finance should be fair, transparent, and strategic. With nearly a decade of industry experience, DAH provides capital solutions for personal injury law firms and plaintiffs across the country.
What sets DAH apart:
Fair, transparent terms with no hidden fees
Concierge-level service from application through funding
Deep understanding of contingency-fee practice economics
Non-recourse structures that protect you if cases are lost
Texas-based with nationwide reach