Litigation Funding: What It Is, How It Works, and Why More and More Companies Use It
Imagine your company has a legitimate, meritorious claim worth several million dollars. Counsel agrees that the case is rock-solid. However, litigating is expensive—attorneys' fees, experts, court fees, and years of proceedings—and allocating that capital to a lawsuit means pulling it away from operations, investment, and corporate growth.
This dilemma is precisely the problem that litigation funding solves.
In this guide, you will understand what litigation funding is, how the process works step-by-step, what types of cases it covers, what happens if the case is lost, and why this mechanism evolved from a niche practice into a global industry that moves billions of dollars annually.
What Is Litigation Funding?
Litigation funding—also known as litigation finance or third-party funding—is a mechanism in which an unrelated third party provides the capital necessary to cover the legal costs of a court case or arbitration. In exchange, that third party receives a percentage of the financial recovery only if the case is successful.
If the case is lost, the funder absorbs the loss. The claimant owes nothing. This is known as non-recourse funding: the invested capital is only recovered if there is a favorable outcome.
It is not a loan. It does not create debt on the balance sheet, nor does it require collateral. It is, in essence, an investment in a legal asset: the right to claim.
Key Fact: The global litigation funding market was valued at approximately USD 19 billion in 2024, with projections to exceed USD 50 billion before 2035. North America and Europe lead in volume, but Latin America is growing rapidly.
How It Works: The Process Step-by-Step
The process follows a fairly standard sequence across the industry, although timelines and depth of review vary depending on the funder and case complexity.
- Initial Contact and NDA: Everything begins with an initial conversation. The case may come directly from the claimant, their counsel, or a partner law firm. Before sharing sensitive information, a non-disclosure agreement (NDA) is signed to protect all parties involved.
- File Creation and Preliminary Evaluation: Once the NDA is executed, relevant case information is gathered to build an initial file. At this stage, a preliminary assessment is conducted to determine if the dispute matches our investment criteria regarding jurisdiction, claim value, legal merits, and enforceability.
- Internal Analysis: If the case passes the preliminary review, our legal and investment team performs a deep-dive analysis. We review available documentation, hold Q&A sessions with the handling lawyers, and evaluate key aspects such as the merits of the case, risks, damages claimed, and the respondent's solvency.
- Issuance of the Term Sheet: If the evaluation is favorable, we issue a Term Sheet outlining the primary economic terms of the potential funding. We aim to be agile: once all necessary information is received, we can typically present an indicative proposal within three to four weeks.
- Negotiation and Signing of the LFA: After discussing and agreeing upon commercial terms, the parties execute the Litigation Funding Agreement (LFA)—the contract governing the relationship between Loopa and the funded party.
- External Analysis and Investment Decision: Once the LFA is signed, we may retain external counsel, experts, or specialized consultants to drill down into specific aspects of the case. With this additional insight, the final investment decision is made, and the committed capital is cleared for disbursement.
- Monitoring and Follow-up: Throughout the life of the case, we periodically monitor its progress. This does not imply controlling the legal strategy or intervening in procedural decisions, which remain the exclusive responsibility of the client and their counsel.
- Resolution and Distribution: If the dispute concludes favorably via settlement, judgment, or award, the recovered funds are distributed as stipulated in the LFA. If the case is unsuccessful, the funded party has no obligation to reimburse anything, and Loopa fully absorbs the loss of its investment.
What Costs Does Litigation Funding Cover?
Funding can be applied to virtually all expenses associated with litigation or arbitration:
- Attorneys' fees (own fees and, in some jurisdictions, adverse costs if the case is lost).
- Court or arbitration tribunal fees.
- Expert witness and specialist fees.
- Discovery and document production costs.
- Travel, translation, and logistics expenses.
- Enforcement costs for judgments or awards.
- Working capital during the proceedings.
Some funders also offer early monetization: they advance a portion of the expected claim proceeds so that the company can utilize it as liquidity while the litigation is ongoing. This is particularly valuable in disputes that may drag on for several years.
Who Can Access Litigation Funding?
Generally speaking, any individual or corporate entity with a legitimate claim backed by strong fundamentals can access funding. In practice, the primary users are:
- Corporations facing high-value commercial disputes that prefer not to tie up their operational cash flow.
- Law firms seeking to offer funding solutions to clients or looking to take on cases on a contingency fee basis.
- Individual claimants with substantial claim amounts (personal injury, intellectual property, estate disputes).
- Groups of claimants in collective redress or class actions.
- Creditors who need to enforce unpaid judgments or arbitral awards.
Every funder has its own investment criteria. At Loopa, we finance high-value commercial litigation and arbitration across both Latin America and continental Europe. Our focus includes contractual disputes, construction and infrastructure, energy, mining, financial services, insolvency, asset recovery, investment treaty arbitration, environmental controversies, antitrust/competition, and other complex commercial conflicts.
In general, we look for claims with a minimum value of USD 1 million, allowing us to maintain a sound balance between risk, duration, and expected return. Beyond financing ongoing case costs, we also provide judgment and award monetization solutions, enabling companies and individuals to unlock liquidity prior to final recovery.
Why It Is Non-Recourse (And Why It Matters)
The concept of non-recourse is central to litigation funding and is what sets it apart from a bank loan.
In a traditional loan, if the debtor cannot repay, the bank forecloses on the collateral. In litigation funding, there is no collateral. If the case is lost, the funder loses its investment. Period. There is no recourse against the claimant or their corporate assets.
Concrete Implications:
- It does not appear as debt on the company's balance sheet.
- It does not impact financial ratios or debt covenants.
- It transfers the economic risk of the litigation entirely to the funder.
- It aligns incentives: the funder only wins if the claimant wins.
For a CFO, this means they can pursue a multi-million dollar claim without impacting EBITDA or compromising credit lines. For corporate counsel, it means offering their client a solution that eliminates the financial barrier to litigation.
Types of Cases Funded
Litigation funding applies to a broad range of disputes. The most common types include:
| Case Type | Description |
|---|---|
| Commercial Litigation | Breach of contract, shareholder disputes, corporate fraud, and inter-company damages. |
| International Arbitration | Commercial arbitration (ICC, LCIA, HKIAC) and investment arbitration (ICSID). One of the fastest-growing segments. |
| Intellectual Property | Patent, trademark, and trade secret infringement. Common in markets like the US and Germany. |
| Competition and Antitrust | Claims stemming from anti-competitive practices, cartels, and abuse of dominance. |
| Class Actions | Collective actions involving consumers, investors, or parties affected by environmental damage. |
| Enforcement of Judgments & Awards | When a favorable ruling is secured but the counterparty refuses to pay, enforcement can also be funded. |
Litigation Funding vs. Other Alternatives
A frequent point of confusion is equating litigation funding with credit or contingency fee arrangements. They are fundamentally different:
- vs. Bank Credit: Credit generates debt, requires collateral, and must be repaid regardless of the case outcome. Litigation funding is non-recourse and debt-free.
- vs. Contingency Fees (Cuota Litis): In a contingency fee arrangement, the attorney takes a percentage of the outcome. In litigation funding, an independent third party (not the attorney) provides the capital and assumes the financial risk. Both mechanisms can coexist.
- vs. After-the-Event (ATE) / Legal Expenses Insurance: Insurance covers adverse costs if the case is lost. Funding covers your own affirmative costs to actively litigate. They are complementary, not mutually exclusive tools.
The Global Market: Where We Are Today
What began as a niche market in Australia and the United Kingdom in the mid-1990s has matured into a global industry. Today, the litigation funding market moves between USD 19 billion and USD 25 billion annually. Conservative estimates project it will top USD 50 billion before 2035.
Major players include funds like Burford Capital, Omni Bridgeway, Deminor, Therium, Harbour, and Validity Finance. However, capital is also flowing in from pension funds, hedge funds, sovereign wealth funds, and family offices that view legal assets as an investment class uncorrelated with traditional markets.
Latin America is emerging as a high-potential market. Countries like Mexico, Argentina, Colombia, Chile, and Brazil are seeing increased adoption of the mechanism, driven by the complexity of commercial disputes and the need for access to justice in high-value litigation.
How to Get Started
If you have a high-value litigation or arbitration matter and wish to explore financing options, the first step is simple: submit your case for a preliminary review. There is no cost or obligation, and confidentiality is strictly guaranteed from the very first contact.
Do you have a case?
At Loopa, we evaluate judicial and arbitral claims with an amount in dispute exceeding USD 1 million. We offer proprietary capital, rapid decision-making, and absolute confidentiality.
👉 You can request and obtain funding here.