How much does litigation funding really cost?

There is no fixed fee. The return for the funder is negotiated on a case-by-case basis and is usually a multiple of 2x to 3x on the invested capital, or a percentage of the outcome (typically between 15% and 40%, depending on complexity and duration). It is more expensive than a loan in nominal terms, but the key difference is that it is only paid if the case is successful.

Is litigation funding legal in Latin America?

Yes. There is no general prohibition in the main jurisdictions of the region. Mexico, Argentina, Colombia, Chile, Peru, and Brazil allow the use of third-party funding. In most of these countries, there is no specific regulation, which means that it operates under the general framework of contracts. Brazil is a regional reference for having issued recommendations on disclosure in arbitration.

What happens if the funder and the claimant do not agree to accept a settlement?

It depends on what the LFA (Litigation Funding Agreement) says. The best agreements include governance clauses that define how these decisions are made. In general, the plaintiff has the final say, but rejecting a reasonable offer against the funder's recommendation can have contractual consequences, such as a reduction in the funder's return percentage.

Does litigation funding affect the attorney-client relationship?

He shouldn't. The lawyer still owes exclusive loyalty to his client. However, when the funder pays the fees, potential conflicts of interest may arise. The best practice is for the lawyer to maintain total independence, for communications with the funder to be covered by an NDA, and for the client to be informed of all the terms of the agreement.

Can I use litigation funding and a contingency fee agreement at the same time?

Yes, both mechanisms can coexist. The funder covers the costs of the litigation and the lawyer works on a partial or total success basis. The key is that the payment waterfall (how the outcome is distributed) is clearly defined from the beginning to avoid conflicts between the funder, the lawyer, and the client.

Advantages, Risks, and Limitations of Litigation Funding: What You Need to Know Before Funding a Case

Advantages, Risks, and Limitations of Litigation Funding: What You Need to Know Before Financing a Case

Litigation funding has many supporters and vocal critics. Depending on who you ask, it is either the most powerful tool for democratizing access to justice or a threat to the integrity of the legal system.

The reality, as often happens, lies somewhere in between.

This article is not a sales pitch or a warning pamphlet. It is an honest analysis of what litigation funding does well, where it has limitations, and what risks you should evaluate before moving forward with an agreement. If you are considering litigation funding for your company, your firm, or a specific case, this is the information you need to have on the table.

Concrete Advantages

Let's start with what works. These are not theoretical advantages — they are the reasons why the market went from being a niche to moving over USD 19.000 billion annually.

Access to justice without depending on cash flow

The most obvious and most powerful advantage. Litigation is expensive. An international arbitration can cost several million dollars in fees, experts, expenses, and logistics. Funding allows a legitimate claim to progress without the plaintiff having to bear that cost with their own resources.

This applies not only to small or insolvent companies. Increasingly, corporations with available cash choose to finance their litigation externally because they prefer to allocate that capital to operations. It is a financial decision, not a sign of weakness.

Real transfer of risk

Litigation funding is non-recourse. If the case is lost, the funder absorbs the loss. The plaintiff does not have to repay anything. This is not a minor detail — it is what sets it apart from a loan. The economic risk of litigation is effectively transferred to a third party that has the experience and capital to absorb it.

Does not create debt on the balance sheet

Being not a loan, funding does not appear as financial liability. It does not affect leverage ratios, does not compromise credit lines, and does not impact bank covenants. For a CFO, this means being able to pursue a million-dollar claim without touching the EBITDA.

External validation of the case

When a funder agrees to invest in a case, it says something: that its own team of legal and financial analysts, after rigorous due diligence, considers the case to have merit and reasonable chances of success. This serves as a signal to the board, to the lawyer, and in certain contexts, to the counterparty.

Aligns incentives between parties

The funder only wins if the case wins. There are no monthly fees, no hourly charges, no billing regardless of the outcome. This structure creates a natural alignment: all parties involved have an interest in achieving the best possible outcome for the case.

Levels the playing field

In many litigations, economic asymmetry is the determining factor. A company with unlimited resources can prolong a process until the other party runs out of money to continue litigating. Funding eliminates that tactical advantage: the financed plaintiff has the backing to litigate for as long as necessary.

Risks and Limitations to Be Aware Of

No financial instrument is perfect. Litigation funding has aspects that should be carefully evaluated before signing an agreement.

The cost is not low

This needs to be stated clearly. Litigation funding is not cheap. Typical returns for the funder can be a multiple of 2x to 3x on the invested capital, or a significant percentage of the outcome. It is more expensive than a bank loan in purely numerical terms.

But direct comparison with a loan is misleading. The loan is always repaid, whether you win or lose. Litigation funding is only paid if you win. This risk differential explains the cost.

Not all cases qualify

Funders are selective. Depending on the source, between 5% and 15% of cases presented end up being funded. Criteria include legal strength, minimum amount, ability to collect from the counterparty, and favorable jurisdiction. If the case does not meet these filters, there will be no funding.

A case being rejected does not mean it lacks merit. It may mean that the amount is too low to justify the due diligence, that the counterparty has no enforceable assets, or that the jurisdiction presents risks that the funder does not want to assume.

Approval process takes time

Obtaining funding is not immediate. The initial screening can be resolved in days, but the full due diligence takes weeks — typically between 4 and 12 weeks, depending on complexity. If the litigation has urgent deadlines, planning accordingly is necessary.

Some funders have more agile processes than others. Funds operating with their own capital tend to decide faster than those that require approval from external investors.

Potential tensions over control and settlement

Legal control always remains in the hands of the plaintiff and their lawyers. At Loopa, we maintain an essentially passive role: we provide the necessary capital to fund the dispute, but do not direct the legal strategy or intervene in procedural decisions. Our goal is to support the case from a financial perspective, always respecting the independence of the client and their legal team.

Disclosure requirements in certain jurisdictions

In some jurisdictions — particularly in international arbitration and certain US courts — disclosure of the existence of a funding agreement is required or may be required. This can have strategic implications: the counterparty knows that a third party is funding the case, which can affect negotiation dynamics.

The global regulatory trend is towards more transparency, not less. Those evaluating litigation funding should consider the disclosure framework of the relevant jurisdiction.

Confidentiality and sharing case information

For the funder to evaluate the case, access to detailed information is needed: legal strategy, merits analysis, litigation budget, key documents. This requires sharing sensitive information with a third party, which may not be comfortable for everyone.

The NDA signed at the outset protects confidentiality, but the risk that the counterparty may try to obtain those communications in discovery exists and varies by jurisdiction. The legal privilege coverage over communications with the funder is a topic that is still evolving.

Three Myths to Dismiss

Myth 1: "Litigation funding encourages frivolous lawsuits" This is the most repeated argument by critics and the least supported by evidence. Funders invest their own capital in cases. A frivolous lawsuit is, by definition, a bad investment. The due diligence they conduct acts as a filter: they only fund cases with real merit and reasonable chances of success. If anything, the effect is the opposite — litigation funding filters out weak cases.

Myth 2: "The funder takes control of the case" In the vast majority of modern agreements, legal control remains with the plaintiff and their lawyers. The funder is a passive investor with information rights and, in some cases, an advisory voice in settlement decisions. But they do not lead the strategy, choose the lawyers, or make unilateral decisions. Agreements that do not respect this separation are becoming increasingly rare and, frankly, are warning signs about the quality of the funder.

Myth 3: "It is only useful for companies that have no money" This was true 20 years ago. Today, solvent companies and publicly traded corporations use litigation funding as a financial management tool. According to recent industry surveys, the majority of corporate users of litigation funding are companies with available cash choosing not to use it for litigation. They prefer to transfer the risk and preserve capital for operations.

When It Makes Sense and When It Doesn't

There is no universal answer. But there are clear patterns:

It makes sense when: The claim is strong but costly to litigate, when the company prefers not to assume the economic risk of the process, when there is a resource asymmetry with the counterparty, or when the litigation could drag on for years and have a significant cash impact.
It doesn't make sense when: The amount in dispute is low (less than USD 1M), the counterparty has no enforceable assets, the case has weak merits, or the company is in extreme urgency and cannot wait for the approval process.

How to Evaluate If Your Case Is Fundable

The best way to find out if your case qualifies for funding is to undergo a preliminary evaluation. It is quick, confidential, and has no cost or commitment.