Non-Recourse Funding

Non-recourse funding means the claimant has no obligation to repay the funder if the case is lost or produces no recovery — the funder's capital is at risk entirely on the outcome. This structure is the defining characteristic of most litigation finance arrangements and is what distinguishes it from a conventional loan. From a regulatory standpoint, non-recourse treatment affects whether the arrangement is classified as a loan subject to lending laws, usury caps, or consumer finance regulations. For funders, the non-recourse nature demands rigorous pre-investment merit review because there is no collateral backstop.

Because there is no collateral backstop if the case fails, non-recourse pricing is built entirely from the funder's own merits diligence rather than the claimant's creditworthiness — a claimant with no assets and a strong case is fundable, while a wealthy claimant with a weak case is not. Regulatory classification of an arrangement as non-recourse (rather than a disguised loan) is itself an underwriting and legal-structuring exercise, since usury and consumer-finance laws in some states turn on exactly this distinction.