According to one partner at a Global 100 law firm, “You would have to live under a rock not to know about [legal] finance.” We at Burford would not be so bold in our framing, but the 2020 Legal Finance Report confirms that 90% of lawyers express some level of category familiarity, with use up 105% since 2017.
Naturally, rising awareness and use translates to improved understanding of the category. But it is also the case that increased use has led to an acceptance of legal finance—as not only ethical but commonplace. Together, these changes in sentiment are paving the way for innovative new applications of what is increasingly understood as finance for law.
Attitudes about financing are evolving with legal finance use
Increasingly, lawyers demonstrate the view that legal finance is both commonplace and ethical in the kinds of questions they ask about it. In the 2019 Legal Finance Report, 69% of lawyers agreed that finance is widely accepted in the legal industry, and 71% agreed that business necessity requires financiers to provide capital only for meritorious matters. New research conducted by Bloomberg Law confirms that users of legal finance accept it as normative and that concerns around the category are driven almost entirely by non-users, i.e., lawyers without direct experience of legal finance.
Where lawyers once stated familiarity with outside finance, they now tend to admit a need for education about it, including the range of financing options available. Since 2018, there has been a 44% decline in lawyers claiming that they are “very familiar” with legal finance, despite the significant rise in use. In interviews, in-house lawyers consistently communicate a desire for outside counsel to educate them about financing options, and law firm lawyers reveal knowledge gaps around legal finance pricing and deal structure. By owning up to these gaps, lawyers are not only signaling their acceptance of finance, but also paving the way for innovative new products.
With legal finance becoming more commonplace, lawyers are expressing a desire to use legal finance in ways resembling corporate finance for law. The benefit of legal finance that lawyers most often cite as “very important” is its ability to help companies generate immediate liquidity for general business purposes. Perhaps unsurprisingly then, more than two thirds of lawyers say their organizations are likely to use legal finance to offset recession impacts in the years ahead, particularly as cash becomes scarce. Indeed, research reveals that in this environment, tools like monetization—which allow litigants to use pending claims and awards to generate immediate working capital—will become ever-more popular: 70% of lawyers expect to consider them going forward.
Gone are the days when finance was a niche tool known only to law firm litigators. Research confirms that legal finance is a widely accepted solution for companies and law firms alike. In the years ahead, this use-driven acceptance will lead to powerful new applications of finance for law—and lawyers that neglect to learn more about legal finance risk getting left behind.