By Legal Futures Associate MA Financial Group
Following the demise of Novitas Loans and Affiniti Finance in recent months, and the subsequent negative coverage in the legal trade press, it is worth taking a step back to consider when looking for a legal disbursements funder to work with – not all are created equal.
The key things a professional funder will want to understand
A competent funder will always try to understand your business:
- How well established is your firm in the case types handled?
- Where do cases come from?
- What experience do the fee earners have of these case types?
- What is your firm’s risk appetite, criteria, and long-term strategy in relation to the case types?
- Do you have a demonstrable track record of success in winning these cases?
- How do you risk-assess your experts?
Your firm’s financial situation
And then, of course, they should want to understand your finances.
A funder will want to look at things like your last three years financials, and forecasts, existing loans and security given, working capital and cashflow.
This list is not exhaustive but shows it is not as simple as “We have some cash that we would like to make a return on; please take several thousands of pounds and do what you wish.”
That’s clearly a recipe for disaster and only brings all parties into conflict, creates a very poor image of the industry, and often leaves clients with nowhere to go.
A client perspective: key questions most clients ask
If a funder expects to know that much about your business, it’s only fair that your firm should carry out its own due diligence of the funder to ensure your business gets what it needs on a long-term, sustainable basis.
What questions should you be asking? Based on our clients’ experiences here are a few basic questions.
- What is the funder’s track record and how well established are they?
- Is the money being lent the funder’s own money or is it being borrowed from a third party?
- Are the terms simple and transparent?
– Is the interest rate simple or compound?
– Are there additional charges such as drawdown fees, and set up fees?
– Does it affect or complicate my relationship with my client?
- What is the funder’s experience of lending in this market?
- Do they have simple stable systems to ensure your business isn’t tied up in operational knots?