Pre-settlement funding is designed to assist with routine expenses and medical bills during a lawsuit. In some states, pre-settlement funding companies are licensed lenders and the pre-settlement funding is often referred to as a lawsuit loan or advance. In most states, pre-settlement fundings companies are not regulated as lenders and offer to purchase a portion of the potential proceeds from your pending legal claim. However, pre-settlement funding, even when provided in the form of a loan, works differently than a traditional loan.
A conventional lender, such as a bank or credit union, does a thorough assessment of an applicant’s financial standing. A credit check is an integral part of this process, and a poor credit score can prevent an applicant from obtaining a loan or line of credit. Other factors, such as current employment and employment history may also be evaluated, adding to the application processing time.
In comparison, applying for pre-settlement funding is much easier. You can usually apply online or over the phone if you are the plaintiff with a pending legal claim and you have hired an attorney. At this stage, most funding companies need basic information about you, your case and contact information for your personal injury lawyer.
Because the funding company bases approval on the strength of your case rather than your financial standing, your credit score is not a factor in the approval process. Instead, the funding company will talk to your lawyer to learn more about the details of your case. It will then decide if you qualify for funding and if so, how much money to provide based on the case value and the chances of a successful outcome. Depending on the type of funding and the amount, a funding company may run a credit report just to confirm that there aren’t any other liens that would impact your settlement proceeds.
For the funding company, this is all about risk management. Is it a worthwhile business decision to issue the cash or pre-settlement funding based on your legal circumstances? In many situations, the answer is “no,” because funding companies only take on the strongest cases.
With approval, however, you can use that money to pay medical bills and almost any other expenses that have come up as a result of the injury. For example, many people who get seriously injured are unable to work, so you may use the cash as wage replacement for a period of time until you can start making money again. The only expense you cannot use the funding for are any legal costs and expenses related to your pending legal claim. The amount you can get for pre-settlement or legal funding varies based on your specific case.