Given the popularity of our first post, we decided to expand on this topic with a few additional tips.
We’ve helped hundreds of attorneys and plaintiffs accelerate their legal fees and grow their practices over the years. During that time, we’ve identified a few best practices. Here are our three extra tips of things to think about before you sign on the bottom line.
Understand the Cost of Capital
Reviewing the transaction documents closely, is perhaps the most important thing that you can do to help understand the true cost of a financing transaction. Make certain that you also consider the representations and warranties that you will be providing, as well as the default provisions of the agreement. Only with a clear understanding of these provisions and a realistic view of the timing of your own cash flow, will you be able to evaluate the true cost of a financing transaction.
Whether your deal involves monthly payments or a single balloon payment, having a realistic expectation of your interim cash flows will help you understand if a proposed financing transaction works for you, or your firm. Will you be able to make the periodic payments, or meet the deadline for the balloon payment without triggering a default? That is an important question that you need to be able to confidently answer before committing to a transaction.
Equally important, don’t assign or borrow more than you need. Litigations and post settlement distributions have a way of almost always both taking longer and paying less than expected. Plan for that contingency.
Have a Plan
When you reach out to a capital provider, have a plan in mind. This will kickstart the conversation and show that you have given thought to the process. Know the amount that you realistically need and how you plan to repay, or amortize the obligation. While there will be always be negotiations when structuring a transaction, showing that you have given the process serious thought is a good sign to your financial counter-parties.
Don’t forget, people matter. We’re coming out of interesting times. Covid related court closures wreaked havoc on portions the legal industry. Some practice areas were busier and others, such as litigation, or appellate practice slowed to a crawl. If you can, find out how the lender dealt with your peers. Ultimately, it’s best to choose a capital provider that remains reasonable when the unexpected happens.
Details, Details, Details
Know all the details of your deal. While this may sound obvious, it is essential and often overlooked. Life has a funny way of getting in the way when you least expect it. Understanding the details of your deal is important in case something out of your control goes wrong. What triggers a default? What are the rights of the capital provider to pursue you, your firm or other case inventory in the event of a bankruptcy? What is your personal liability.
Knowing what will happen in the event of a worst-case scenario removes any surprises at a time when stress is already high.
The bottom line is litigation funding is a powerful tool that requires careful thought and realistic planning. Still have questions? RD Legal Funding is here to help. Contact us to discuss our fee acceleration solutions.
