Louisa Klouda, CEO & Founder at Fenchurch Legal
By Louisa Klouda, CEO & Founder at Legal Futures Associate Fenchurch Legal
Litigation funding is becoming an increasingly strategic tool for law firms seeking to pursue higher volumes of strong claims without tying up their own capital.
While often associated with large-scale commercial disputes or class actions, a growing segment of the market now focuses on high-volume, low-value consumer claims, enabling firms to progress multiple cases simultaneously without significant upfront financial exposure.
However, not all claims are suitable for external funding. Understanding what funders look for is essential for firms aiming to secure financial backing and ensure alignment from the outset.
From legal strength to commercial viability, this article outlines the key criteria funders typically use when assessing the suitability of claims for funding.
- Legal Precedent and Predictability
One of the first considerations is whether the claim is supported by well-established legal precedent. Funders generally avoid taking speculative legal risks, they favour claims with a clear legal foundation and a predictable path through the courts.
Protocol-driven, process-based consumer claims with clearly set criteria, such as housing disrepair and financial mis-selling, offer this level of clarity. These types of claims tend to follow well-defined litigation processes and benefit from a consistent track record of favourable outcomes, making them well-suited to a high-volume funding model.
- Legal Merits and Likelihood of Success
Every fundable case must demonstrate strong legal merit. This means a clear cause of action, strong supporting evidence, and a realistic prospect of success.
Most funders will expect an early review of the merits, often supported by counsel’s opinion where precedent is not as widely applicable before committing capital. This is most convincingly demonstrated through the borrower’s own track record in the given claim area.
ATE insurers often conduct their own assessments before issuing policies, so the presence of insurance can serve as an external indicator of a claim’s strength.
- Commercial Viability
Even with strong legal merit, a claim must be commercially viable. Funders will assess whether expected recoveries are sufficient to justify the provision of funding and whether the cost-to-damages ratio meets internal thresholds.
A key consideration is the cost for the law firm to run the case. If legal costs are high but potential damages are low, the case may not be viable for funding or commercially worthwhile for the firm. In such instances, a narrow margin can compromise efficiency or outcomes.
Funders also expect realistic and recoverable disbursements. Claims with inflated costs, limited damages, or uncertain recoverability are unlikely to secure funding, particularly in volume-based portfolios, where consistency and scalability are essential.
- Solvent Defendants
Winning a case is one thing, but recovering the damages is another. Funders must be confident that the defendant has the financial means to pay, as this directly impacts the law firm’s ability to repay the loan.
As such, funders typically look at funding claim types against highly liquid defendants, such as insurers, banks, or government bodies, where the risk of non-payment is materially reduced.
- Timelines and Turnaround
Duration is a key factor in any funding decision. The longer a case takes to resolve, the greater the exposure for the funder and the longer it takes for the law firm to repay the loan.
Funders tend to prioritise claims with a predictable turnaround, ideally within a timeframe of 12 to 24 months in the consumer claims sector. Protocol-driven claims lend themselves well to this, thanks to clearer timelines and precedents.
- ATE Insurance in Place
After the Event (ATE) insurance is a must-have, as it protects against the risk of adverse costs and strengthens overall case security for both the firm and the funder.
Having ATE in place is often seen as an external endorsement of the claim’s strength. Most funders will require that active ATE policies are secured prior to funding, ensuring risk mitigation from the outset.
- Operational Capacity and Resources
Funding a case is only part of the equation; delivering it efficiently is equally important. Law firms must demonstrate they have the resources, systems, staff, and relevant experience in place to manage claims effectively, particularly when dealing with claims at volume.
Without this operational capacity, even high-quality claims may underperform, introducing additional risk to the funder and reducing the chances of success.
- Strategic Fit with the Funder
Not every viable claim aligns with every funder’s model. Some specialise in complex, high-value commercial litigation, while others specialise in high-volume, low-value consumer claims governed by established protocols.
Understanding a funder’s strategy, claim preferences, and portfolio appetite can significantly improve the chances of forming a successful funding relationship.
Final Thoughts
Litigation funding is a valuable tool for law firms looking to pursue strong claims without financial strain, particularly in the context of high-volume consumer claims.
However, not all claims will meet a funder’s criteria. Beyond legal merit, funders assess a range of factors, including timelines, case economics, and operational capability.
For law firms, aligning early with funder expectations can significantly enhance the likelihood of securing support and progressing claims with confidence.
By understanding what funders are looking for, firms can better prepare their cases and establish funding relationships that benefit all parties, not least the clients seeking justice.
At Fenchurch Legal, we specialise in providing fast, flexible funding for high-volume, low-value consumer claims, supporting law firms with the capital they need to scale efficiently.
To find out more about how we work with law firms and the types of claims we fund, visit www.fenchurch-legal.co.uk.
