Funding Cap

A funding cap is a limit — imposed by the funding company's own underwriting policy, by a state statute, or by both — on the amount that can be advanced against a pending claim, generally expressed as a maximum dollar amount or as a maximum percentage of the case's assessed value. Most funders self-impose a cap well below their own valuation of the case, commonly keeping cumulative advances to a modest fraction of the anticipated net settlement, specifically to preserve a meaningful recovery for the claimant and to protect against the risk that legal fees, medical liens, or a lower-than-expected settlement leave nothing to repay the advance. A handful of states go further and statutorily limit the amount or proportion that can be funded, or require the funder to certify that the total funded amount does not exceed a defined share of the projected recovery before the transaction can close. Funding caps become especially important where a claimant has already received one or more prior advances, since a second or third funder must assess not just the case's total value but how much of that value remains unencumbered by earlier liens and fee obligations before determining whether — and how much — additional capital can responsibly be advanced.

Funders treat the cap as a discipline against their own incentive to grow the advance to match whatever amount a claimant requests, because an advance sized to the claimant's immediate need rather than to a safe fraction of case value is a leading driver of shortfall losses when a case settles for less than projected.

The cap also functions as the gatekeeping mechanism for stacking: a funder evaluating a subsequent advance request checks the existing balance against the case's assessed value specifically to determine whether room remains under a responsible cap before approving any additional capital.