Non-Recourse Loans: Pros, Cons, and a Better Option

June 12, 2023

Level Case Financing
June 12, 2023

Non-Recourse Loans: Pros, Cons, and a Better Option

Non-recourse loans have become more popular lately for lawyers looking for funding for their case. But what is a non-recourse loan and are there better options?  

What is a Non-Recourse Loan

Essentially, a non-recourse loan is a loan that, if defaulted on, the lender can not collect the money owed, but only the collateral put up for it. The lender may seize only the collateral, even if it does not cover the entirety of the debt.  

Pros of Non-Recourse Loans

There are some pros to non-recourse loans, such as...

Limited Personal Liability

A pro of non-recourse loans for lawyers is the limited personal liability they offer. In a non-recourse loan arrangement, the lender's only recourse in case of default is the collateral provided for the loan, typically a specific case or cases. This means that if the lawyer is unable to successfully resolve the case or if the settlement amount is insufficient to cover the loan, they are generally not personally responsible for repaying the loan. This feature provides a level of protection for lawyers, as they can pursue cases without putting their personal assets at risk.

Cons of Non-Recourse Loans

While that advantage may convince you to use a non-recourse loan, there are some cons to consider, such as...

Higher Interest Rates

One of the drawbacks of non-recourse loans for lawyers is that they often come with higher interest rates compared to traditional recourse loans. Lenders assume greater risk in non-recourse loans since they have limited recourse if the case is unsuccessful. To compensate for this risk, lenders may charge higher interest rates, which can result in higher overall borrowing costs for lawyers. This can eat into the potential settlement or judgment amount, reducing the net proceeds for the lawyer even if the case is successful.

Limited Funding Availability

Non-recourse loans may have limitations on the amount of funding available. Lenders typically evaluate the merits of the case before extending a non-recourse loan. If the case is considered risky or lacks sufficient potential for a significant settlement, lenders may be reluctant to provide the desired funding or may impose stricter terms. This can limit the lawyer's ability to secure adequate financing to cover all the necessary expenses associated with the case. Lawyers may need to seek alternative sources of funding or self-finance certain aspects, which can create additional financial burdens or constraints.

A Better Option

There is a better option than a non-recourse loan for lawyers looking for financing.

Level Case Financing  

Created by trial lawyers, for trial lawyers, Level Case Financing is a line of credit on a case-by-case basis for lawyers at a net cost of 1% annually. You can borrow money for your case up to the limit amount.

When you fund a case with Level Case Financing, your case expenses are covered and are able to maximize results for your case with confidence.

Apply and buy a policy today.  

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