Guide to Pre-Settlement Funding

Many victims whose injuries resulted from another party’s negligence cannot focus just on their recovery because they need to pay their bills. That is where pre-settlement funding can make all of the difference in your quality of life while you wait for your personal injury lawsuit to settle.

Although often referred to as a pre-settlement loan or even a lawsuit loan, pre-settlement funding is not a loan per se. Unlike a loan, there is no need for a credit check or income or employment verification.

Pre-settlement funding is like a cash advance on an anticipated settlement or verdict in a personal injury case. The future settlement serves as collateral. At Mustang Funding, we offer funding amounts ranging from $500 to $100,000, typically without any restrictions on how the cash is used.

How Does Pre-Settlement Funding Work?

Depending on your individual circumstances and the laws in your state, plaintiffs may be eligible for pre-settlement funding based on the expected settlement amount. For instance, if your lawyer estimates a potential settlement of $200,000 for your case, you could qualify for pre-settlement funding that aligns with this estimate after consultation with the lender.

After receiving your pre-settlement funding, you gain peace of mind as you cover necessary bills. Pre-settlement funding allows you to focus on your recovery rather than stressing about cash.

Pre-settlement funding helps level the economic playing field against deep-pocketed defendants and insurance companies. When plaintiffs and their attorneys have adequate resources, they are better equipped to pursue a claim to its full potential.

Pre-settlement funding is repaid when you reach a settlement or receive a favorable verdict. Depending on the state, settlements or judgment awards are distributed in the following order:

  • Medical liens and related fees
  • Attorney and court fees
  • Pre-settlement funding advances

The plaintiff receives the balance of the settlement or award after these distributions are made. Your lawyer should handle all distributions.

Is Pre-Settlement Funding Safe?

Pre-settlement funding is very safe. Your obligation to repay is contingent upon your legal success. That is because pre-settlement funding is non-recourse. That means that if you do not receive a settlement or a court verdict is unfavorable, you do not have to repay the money. With pre-settlement funding, the lender assumes all the risks.

While many people use their pre-settlement funding to pay for ordinary expenses, there are no limitations on what you can do with the money.

Other Terms for Pre-settlement Funding

“Lawsuit loan” is a common, though misleading, term that is sometimes used to refer to pre-settlement funding. It is misleading in that lawsuit funding is not technically a loan – unlike a loan, your current financial situation and credit score are not taken into account when determining your eligibility to receive funds, and the money does not have to be paid back at all if you don’t win your case.

Other terms for this kind of non-recourse funding include:

  • Third-party litigation funding: As per the U.S. Government Accountability Office (GAO), this type of litigation financing is “an arrangement in which a funder who is not a party to the lawsuit agrees to help fund it. Funders may get a payoff on their investment if the suit is successful. Funders are typically private firms that obtain funds from investors.”
  • Legal funding
  • Litigation funding

Can I Get a Pre-Settlement Loan Without My Lawyer’s Approval?

Lawyer at a desk reviewing a settlement document

To obtain pre-settlement funding, you must have a pending personal injury lawsuit and representation by an attorney. Your lawyer plays a critical role in the funding evaluation process. The lender must consult the attorney to determine whether you have a strong case and are likely to obtain a substantial settlement or a positive verdict if heading to trial.

While the rules for pre-settlement funding vary by state, your lawyer does not have the authority to unilaterally deny you from seeking pre-settlement funding. This decision is yours to make. As noted, we require your attorney’s cooperation to proceed with the funding application.

What Types of Lawsuits Qualify for Pre-settlement Funding?

Different types of personal injury lawsuits and certain other types of civil lawsuits may qualify for pre-settlement fundings. Such lawsuits include:

  • Auto accidents
  • Birth injury
  • Civil sexual assault and battery
  • Dog bite
  • Federal Employment Railroad Act (on-the-job injury suffered by railroad worker)
  • Jones Act claims for injured maritime workers
  • Medical malpractice
  • Pharmaceutical injuries
  • Premises liability (slip and fall)
  • Product liability

In some states, workers’ compensation lawsuits may qualify for a pre-settlement loan.

Not all pre-settlement funding concerns personal injury lawsuits. In some situations, a plaintiff with a pending wrongful termination case filed may also qualify for pre-settlement funding.

Mustang Funding also offers pre-settlement funding for those with a pending sexual abuse lawsuit.

How Long Does a Pre-Settlement Loan Take?

The actual application process for a pre-settlement loan can take less than two minutes. The application is free, and there are no hidden fees or charges in the application process. One of our team members will promptly assist you after submitting your application.

After consulting with your attorney, we will base our final decision on whether we believe you will win compensation and how much you are likely to receive. If you have provided complete contact information for your attorney, we could have an answer for you in just 24 hours.

After receiving your proposal, review the details with your attorney. Your attorney is intimately familiar with the details and value of your case, so they are best equipped to provide counsel as to whether you should accept the funds and how much to accept.

If approved, you should receive your pre-settlement funding in as little as 24 hours. Funds are dispersed via check or direct transfer.

Is Pre-settlement Funding a Good Idea?

Depending on the circumstances, pre-settlement funding is often a very good solution to your current financial situation. Pre-settlement funding provides temporary financial assistance, enabling your attorney to pursue optimal settlement terms. In contrast to bank loans, lawsuit funding is lower risk because the funding company is not liable for a lawsuit’s failure.

A serious personal injury due to another party’s negligence puts the victim in a precarious state. While they are dealing with the pain and disability associated with such an injury, they are also unable to work and support themselves. Along with medical bills, they may prove unable to pay their rent or mortgage or meet basic living expenses.

Even though your lawyer says you have an excellent case, the truth of the matter is that lawsuits take a very long time. You can wait months or even years before receiving a settlement. If the case goes to trial, it can take even longer.

Meanwhile, you are struggling to pay your bills and under constant worry and stress.

Your lawyer knows a fair settlement amount based on the nature of your injuries and prognosis. It is in the insurance company’s interest to delay a settlement for as long as possible. Insurers know how vulnerable plaintiffs are in such situations and that the need for money may drive them to accept a lower settlement due to hardship.

Pre-settlement funding provides the money you need for the short term so that your lawyer can continue to negotiate the best possible settlement for you.

Unlike other types of financing, your credit rating has no bearing on whether you qualify for pre-settlement funding.

What Is the Interest Rate for Pre-Settlement Funding?

As noted, pre-settlement funding is not a loan. Expect the interest rates to be higher than for personal loans or auto or mortgage loans.

At Mustang Funding, we offer industry-competitive rates for every six months that your case is outstanding. Your exact rate, though, depends on various factors relating to the specifics of your case. If you’re approved for funding with us, we’ll send an agreement detailing the terms of funding.

Pros and Cons of Pre-Settlement Funding

A woman with a cellphone and a credit card

The pros of pre-settlement funding include helping underfunded plaintiffs litigate their cases. In many cases, pre-settlement funding can help plaintiffs avoid bankruptcy while awaiting their settlement.

On the downside, some plaintiffs may decline to accept a reasonable settlement offer because they want to make up the amount they must repay the lender.

For investors, pre-settlement funding offers the potential of high returns. However, since the funding is non-recourse, if the plaintiff loses the case the investors also lose their investment.

What Are Some Alternatives to Pre-Settlement Funding?

Pre-settlement funding is not the best option for everyone. If you have a fair credit score and do not mind a lender going through the income and employment verification process, a personal loan obtained from a bank, credit union, or online lender will likely cost you less in interest.

Keep in mind, however, that personal loans are recourse loans. If you happen to lose your case in court or do not receive a settlement, you must still pay the lender back. Because pre-settlement funding is non-recourse, in the aftermath of this major disappointment, you do not have to pay back the funds, so you are taking on much less risk than you would with a traditional loan.

Pre-settlement funding is a form of cash advance. Some people may decide instead to obtain a cash advance from their credit card companies. This is not usually a good alternative to pre-settlement funding. Not only are credit card interest rates very high, but borrowers must pay an advance fee in addition to their interest charges. If your payment is late, you are stuck with additional fees.

Another possible alternative is a hard money loan. If you own a house, the value of the property is used as collateral on the loan. Hard money loans are not funded by banks but by individuals or companies specializing in these types of loans. Hard money loans charge high interest rates but are usually arranged quickly, within 10 business days of the loan application. The lender is not as concerned about receiving repayment because if issues arise, they can sell the property. That also means if issues arise, the borrower can lose their home.

For some plaintiffs, borrowing money from family or friends is another option. Borrowing from loved ones or friends comes with its own set of issues, and whether the idea is feasible depends upon the individuals involved. If you lose your case, you cannot pay this money back, which can cause long-term or permanent damage to your relationships. This arrangement might work if all parties understand what is at stake.

How to Find the Right Pre-Settlement Funding Lender

A person researching pre-settlement funding companies on a laptop

Start out by making sure the pre-settlement funding lender is licensed to operate in your state. Look for a pre-settlement funding lender with a solid track record. At Mustang Funding, our team has over 100 years of combined experience in the financial industry and 50+ years specifically in litigation finance. 

The right pre-settlement lender is upfront about all fees and charges, so you are not in for any surprises. Seek out a funding lender that offers favorable terms. Find out the interest rate charged and how often it is compounded. Consider how that interest rate affects how much you can expect from the settlement.

If you have questions about pre-settlement funding, make sure they are answered to your satisfaction by the lender before signing the funding agreement. If you do not understand the terms and the lender does not explain them to you thoroughly, look elsewhere.

By the time you make your decision regarding pre-settlement financing, you should know the amount of all costs and fees. This includes discovering how much you will owe every six months and how much of the settlement or award the lender may take when your case concludes. 

The bottom line is that you should feel comfortable with your choice of pre-settlement funding lender.

Are There Consumer Protection Guides on Settlement Advances?

Pre-settlement funding is not specifically regulated under federal law. States may regulate pre-settlement funding by setting limits on interest rates and fees lenders may charge. While certain courts may require disclosure of litigation funding to the court and opposing party in a lawsuit, this does not apply nationally.

Some states, such as Montana, impose a cap “on the amount that a funder may receive or recover from any judgment, award, settlement, verdicts, or other form of monetary relief obtained from the lawsuit.” Montana’s cap is 25 percent.  

In Colorado, pre-settlement funding lenders must adhere to the Uniform Consumer Credit Code. Under Colorado law there is a $75,000 minimum on all pre-settlement advances. Anything below that amount is subject to interest rate caps. If your case does not qualify for the $75,000 minimum, you are not eligible for pre-settlement funding in Colorado.

According to Lexis Nexis, there is currently pending litigation regarding pre-settlement funding in at least 10 states. The measures concern:

  • Disclosure of such funding
  • Contract requirements
  • Consumer protections
  • Applicability of usury laws

For example, proposed legislation in Florida would require full disclosure of third-party financers and would prohibit them from influencing the applicable legislation.

Is Lawsuit Funding Available in My State?

A road map of the United States with push pins marking cities

Currently, Mustang Funding provides pre-settlement funding in the following states:

There are states in which pre-settlement funding is currently not available, although legislation to permit such funding may be pending. These states include:

  • Arkansas 
  • Connecticut 
  • Illinois (Pending) 
  • Kansas 
  • Kentucky 
  • Maryland 

  • Nevada (Pending) 
  • North Dakota 
  • South Carolina (Pending) 
  • Vermont 
  • West Virginia 

Learn More About Pre-Settlement Funding from Mustang Funding

Contact Mustang Funding today to learn more about pre-settlement funding and whether it is the right option for you. Based in Wayzata, Minnesota, Mustang Funding provides responsible and transparent pre-settlement funding services to litigants from coast to coast. Over the years, we’ve worked with over 1,000 U.S. law firms and signed over 10,000 checks. 

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