Lawsuit financing may be the rage in some “cash flow” circles, and may seem confusing.
But it is really very simple: Plaintiffs in lawsuits need cash to pay their bills. They expect to win their lawsuit, but they need cash to tide them over in the meantime.
If you are in this business, you provide cash to these plaintiffs. If they win their lawsuit, their lawyers turn over to you whatever cash you advanced the plaintiffs, plus a profit. If they lose their lawsuit, then you get zip.
There are numerous cash flow businesses including factoring, mortgage brokerage and equipment leasing. Lawsuit financing is another cash flow business, and a lot of the usual suspects who do one business will do this one too.
But there are differences.
The lawsuit financing business requires you to learn how to evaluate winning lawsuits. If you are investing your own money, you better be sure that you know what you are doing. You have to judge the liability. You have to know what the damages are. You have to know what the other side is likely to do in court. And you have to know how much your case will eventually win.
Also, the skill-set to do factoring or leasing is different. Lawsuit financing requires you to build trust amongst personal injury lawyers. You have to speak their language. You have to convince them that you are knowledgeable and in the business for the long haul.
There are investors who will back you if you are in this business, but they want to have confidence in you. All in all, it is a business best learned from someone already doing it, who has done it for a lot of years, and who can teach you the ropes.
That said, I expect this little known business will be exploding in the next few years. There are 16 million or so civil actions filed in state courts alone each year. And of those, maybe two million will wend their way through court.
Behind every lawsuit is a plaintiff. And behind every plaintiff is often a stream of pressing bills and crushing living expenses. These people may have physical injuries to deal with. Meanwhile, the landlord wants the rent and kids need a ride to school.
So it’s a business you can feel good about if you decide to get into it. You help people when they are down. And you make a buck. What could be better?