Litigation Finance vs. SBA Loans: Why Contingency Firms Turn to Funding

How SBA loan requirements exclude contingency practices, and why litigation finance fills the gap.

Small Business Administration loans, particularly the 7(a) program, are a common source of capital for small businesses, but they are poorly suited to contingency fee law firms. SBA loans are underwritten against conventional credit criteria: demonstrated cash flow, collateral, and the personal guarantee of the business owners. The program is designed for businesses with predictable revenue and tangible assets, and its requirements reflect that orientation.

Contingency practices fail to fit this mold. Their primary asset, a docket of pending cases, is not collateral an SBA lender recognizes, and their revenue is inherently lumpy and unpredictable, arriving when cases resolve rather than on a steady schedule. The personal guarantee requirement is also a significant deterrent: partners are reluctant to pledge personal assets against business borrowing, particularly when the firm's economics depend on outcomes outside their complete control. As a result, many contingency firms cannot access or do not want SBA credit.

Litigation finance fills this gap by evaluating the asset that SBA lending ignores: the firm's docket. Rather than requiring collateral, predictable revenue, and personal guarantees, a litigation funder assesses the expected recovery of the firm's active cases and extends capital against that value. The financing can be non-recourse or limited recourse, removing or reducing the personal exposure that SBA loans require. This aligns the capital with the actual economics of a contingency practice.

The cost comparison must account for these structural differences. SBA loans carry relatively low interest rates because they are government-guaranteed and fully recourse with collateral and personal guarantees. Litigation finance carries a higher cost because it accepts risks SBA lending will not: lumpy revenue, no tangible collateral, and in many cases no personal guarantee. The higher cost buys access to capital that would otherwise be unavailable, structured to fit how contingency firms actually operate.

Criterica Capital provides docket-backed capital to contingency firms, scoring the portfolio against outcome models trained on 106M+ court records rather than requiring conventional collateral or guarantees. This makes capital available to practices that SBA lending cannot serve. Firms that have found traditional lending a poor fit can contact our institutional team to discuss docket-based financing.

Discuss your matter with our institutional team.