Litigation Funding: what it is, how it works, and why more companies are using it
Imagine that your company has a legitimate claim for several million dollars. Lawyers agree that the case is strong. But litigation is expensive —fees, experts, fees, years of process— and allocating that capital to a lawsuit means taking it out of operations, investment, and growth.
That dilemma is exactly what litigation funding solves.
In this guide, you will understand what litigation funding is, how it works step by step, what types of cases it covers, what happens if the case is lost, and why this mechanism went from being a niche to becoming a global industry that moves billions of dollars a year.
What is litigation funding?
Litigation funding —also known as litigation funding, litigation finance, or third-party funding— is a mechanism in which a third party unrelated to the litigation provides the necessary capital to cover the legal costs of a judicial or arbitral case. In return, that third party receives a percentage of the economic outcome only if the case is successful.
If the case is lost, the funder absorbs the loss. The plaintiff does not have to repay anything. 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 or require real guarantees. It is, essentially, 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 step-by-step process
The process follows a fairly standard sequence in the industry, although the timing and depth levels vary depending on the funder and the complexity of the case.
- Initial contact and NDA: Everything starts with an initial conversation. The case may come directly from the plaintiff, their lawyers, or an allied firm. Before sharing sensitive information, a confidentiality agreement (NDA) is signed to protect all parties involved.
- File creation and preliminary evaluation: Once the NDA is signed, relevant case information is gathered to build an initial file. At this stage, a first assessment is made to determine if the dispute fits the investment criteria in terms of jurisdiction, amount, legal viability, and recovery potential.
- Internal analysis: If the case passes the preliminary review, the legal and investment team conducts a more detailed analysis. Available documentation is reviewed, question and answer sessions are held with the involved lawyers, and the merits of the case, risks, amount claimed, and collection capacity are evaluated.
- Issuance of the Term Sheet: If the evaluation is favorable, a Term Sheet with the main economic terms of the potential funding is issued. The goal is to be agile: once all necessary information is received, a indicative proposal can usually be presented within three to four weeks.
- Negotiation and signing of the LFA: After discussing and agreeing on the commercial terms, the parties sign the Litigation Funding Agreement (LFA), the contract that regulates the relationship between Loopa and the funded party.
- External analysis and investment decision: Once the LFA is signed, external lawyers, experts, or specialized consultants can be consulted to delve into specific aspects of the case. With this additional information, the final investment decision is made, and the disbursement of the committed capital is enabled.
- Monitoring and tracking: Throughout the life of the case, a periodic monitoring of its progress is carried out. This does not involve controlling the legal strategy or intervening in procedural decisions, which continue to be the exclusive responsibility of the client and their lawyers.
- Resolution and distribution: If the dispute concludes favorably through settlement, judgment, or award, the recovered funds are distributed according to the agreed terms in the LFA. If the case is unsuccessful, the funded party does not have to reimburse anything, and Loopa fully assumes the loss of its investment.
What costs does litigation funding cover
Funding can be applied to virtually all expenses associated with litigation or arbitration:
- Attorney fees (own and, in some cases, those of the opposing party if lost).
- Court or arbitration fees.
- Expert and witness fees.
- Discovery and document production costs.
- Travel, translation, and logistics expenses.
- Enforcement costs of judgments or awards.
- Working capital during the process.
Some funders also offer early monetization: they advance a portion of the expected case amount so that the company can use it as liquidity while the litigation is ongoing. This is particularly useful in disputes that can extend over several years.
Who can access funding
In general terms, any individual or legal entity with a legitimate claim supported by solid grounds can access funding. In practice, the main users are:
- Companies facing high-value commercial disputes but do not want to compromise their cash flow.
- Law firms looking to offer financing solutions to their clients or take on contingency cases.
- Individual plaintiffs in cases of significant value (accidents, intellectual property, inheritances).
- Groups of plaintiffs in class actions.
- Creditors needing to enforce unpaid judgments or awards.
Each funder has its own investment criteria. At Loopa, we finance high-value asset litigation and arbitration, both in Latin America and continental Europe. Our focus includes contractual disputes, construction and infrastructure, energy, mining, financial services, insolvency, asset recovery, investment arbitration, environmental disputes, economic competition, and other complex commercial conflicts.
In general terms, we seek claims with a minimum value of USD 1 million, allowing us to maintain an adequate relationship between risk, term, and expected return. In addition to funding process costs, we also offer solutions for monetizing judgments and awards, enabling companies and individuals to access liquidity before final recovery.
Why it is non-recourse (and why that 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 pay, the bank enforces the guarantees. In litigation funding, there are no guarantees. If the case is lost, the funder loses its investment, and there is no recourse against the plaintiff or their assets.
Concrete implications:
- It does not appear as debt on the company's balance sheet.
- It does not affect financial ratios or credit covenants.
- It transfers the economic risk of litigation to the funder.
- Aligns incentives: the funder only profits if the plaintiff wins.
For a CFO, this means pursuing a million-dollar claim without impacting EBITDA or compromising credit lines. For a lawyer, it means being able to offer a solution to their client that eliminates the economic barrier to litigation.
Types of cases funded
Litigation funding applies to a wide range of disputes. The most common types include:
| Case Type | Description |
|---|---|
| Commercial Litigation | Breach of contract, shareholder disputes, commercial fraud, damages between companies. |
| 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 for anticompetitive practices, cartels, abuse of dominant position. |
| Class Actions | Consumer, investor, or environmental damage class actions. |
| Enforcement of Judgments and Awards | When there is already a favorable ruling but the opposing party does not pay, enforcement can also be funded. |
Litigation funding vs. other alternatives
A common confusion is equating litigation funding with a loan or a contingency fee agreement. They are not the same:
- vs. Bank Loan: The loan generates debt, requires guarantees, and is paid regardless of the case outcome. Litigation funding is non-recourse and does not create debt.
- vs. Contingency Fee Agreement: In a contingency fee agreement, the lawyer charges a percentage of the outcome. In litigation funding, a third party (not the lawyer) finances and assumes the risk. Both mechanisms can coexist.
- vs. Litigation Insurance (ATE/LEI): Insurance covers adverse costs if the case is lost. Funding covers own costs to be able to litigate. They are complementary tools, not substitutes.
The global market: where we are today
What started as a niche in Australia and the UK in the mid-90s has become a global industry. Today, the litigation funding market moves between USD 19 billion and 25 billion annually. Conservative projections estimate that it will exceed USD 50 billion before 2035.
Key players include funds like Burford Capital, Omni Bridgeway, Deminor, Therium, Harbour, and Validity Finance. But capital is also coming from pension funds, hedge funds, sovereign funds, and family offices that see legal assets as an investment class uncorrelated with traditional markets.
Latin America is emerging as a market with high potential. Countries like Mexico, Argentina, Colombia, Chile, and Brazil are experiencing increased use 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 and want to explore funding options, the first step is simple: submit your case for a preliminary evaluation. It is free and non-binding, and confidentiality is guaranteed from the first contact.
Do you have a case?
At Loopa, we evaluate judicial and arbitral claims with a value exceeding USD 1 million. We offer our own capital, quick decisions, and absolute confidentiality.
👉 You can request and obtain funding here.