Litigation finance is desperately in need of a new era of transparency and control. When litigation funders lend directly to law firms – whether for acquiring cases, working capital or portfolio financing – they face unique oversight challenges. Unlike single-case funding, loans to law firms introduce burn-rate risks and transparency gaps that can jeopardise returns. Funders are seeking to reduce inefficiency by improving oversight. This post examines why law firm lending is risky, the common problems funders encounter, and how technology can help mitigate those risks. We take a global view of these trends, to reflect growing investor expectations, stronger fund governance, and the legal industry’s digitalisation. 

The Transparency and Burn-Rate Risks of Law Firm Loans

Lending to law firms carries particular risks around transparency and burn rate. Once a law firm has secured funding, it may lack the financial pressure to move cases swiftly. The firm’s operating costs are covered by the loan, and repayment is usually contingent on future case outcomes rather than immediate performance. This structure can dull a firm’s incentive to expedite litigation or control expenses. As one industry observer quipped, financing gives the legal “Davids” the time to endure “delay after delay” since they’re “not the one footing [the] legal bill.”¹ In other words, a funded law firm can afford to wait out the process – but the clock is ticking for the funder. One prominent funder we spoke to recently bluntly described their biggest pain point as “getting lawyers to think in IRR terms”, and more than one lamented about limitations on interventions to force a settlement – particularly where this might also better suit the interests of the claimant.

High interest and long durations compound this issue. Loans to law firms often carry double-digit interest rates and typically mature in 3–4 years. If the financed cases haven’t resolved by then, the lender faces a tough choice: either restructure the loan (usually with costly concessions) or extend financing with a new deal². In practical terms, a slow-moving portfolio can burn through capital and accrue interest without any payoff in sight. Poor tracking only worsens this burn-rate risk. If neither the funder nor the firm is rigorously monitoring how funds are used case-by-case, budgets can easily spiral out of control. Indeed, law firms are not traditionally known for budget discipline – many firms still open a matter and bill hours like a “metered taxicab” without a proper budget or scope³. This failure to budget and track costs makes meaningful financial management challenging, often leading to cost overruns and inefficiencies. For a lender, that means the capital provided may evaporate faster than expected, with little to show for it.

In summary, law firm loans pose a perfect storm of moral hazard and opacity: firms have cash in hand and less urgency to deliver quick results, repayment waits on uncertain case outcomes, and absent strong oversight, spending can quietly overshoot plans. 

Common Oversight Challenges for Funders Lending to Firms

When funders lend to law firms, certain recurring problems tend to arise around oversight and monitoring:

• Delayed or Inconsistent Reporting: Funders often struggle to get timely updates from borrower firms. Many funding agreements require regular case status and financial reports, but in practice law firms may delay or provide patchy information – or indeed the lender may lack operational capacity to effectively handle the volume and complexity of data provided. Without direct control, a lender relies on the firm’s lawyers to volunteer progress data – and due to lawyer-client privilege concerns, that information can be limited or heavily filtered⁴. As a result, funders complain of “flying blind” between scheduled updates, unsure whether litigation is on track or drifting.
  
  

• Difficulty Tracking Loan Deployment: It can be surprisingly hard for a funder to track how loan proceeds are being used versus the original budget or use-of-funds plan. A law firm might draw down funds saying they’re for Case A, Case B, etc., but unless there’s diligent record-keeping, the lender cannot easily verify if the money actually went into those matters or just into a general operating pot. In traditional corporate lending, lenders can monitor use of proceeds; in law firm financing, the opacity of case expenses and firm finances makes this a challenge. Poor tracking on the firm’s side – e.g. no granular expense logs per case – leads to situations where funders only discover a budget overrun after the money is spent.
  
  

• Lack of Early Warning on Budget Overruns: Because of the reporting lags and weak tracking, funders often get no early warning that a funded case or portfolio is over-budget. By the time a lender learns that litigation costs have exceeded projections, the overrun may be a fait accompli. For example, if a complex case was supposed to cost £3 million but is burning through £4 million, the firm might not flag this until they need more money. Without real-time monitoring, the funder loses the chance to course-correct or impose spend controls mid-stream. Ideally, a lender would want to know before a budget is blown – not after.
  
  

• Inconsistent Data and Formats: Even when law firms do report, there’s often no standardised format. One firm might send a simple email summary, another shares a spreadsheet of expenses, another just gives a narrative update. This inconsistency makes it hard for funders to aggregate information or spot patterns across their portfolio. The absence of a standard borrower reporting framework is a headache for operational teams at funding firms.

The cumulative effect of these issues is a murky view for the lender. Instead of the transparency one would expect when deploying millions in capital, funders may feel they are navigating in the dark, relying on only occasional signals from the borrower. This lack of clear oversight creates not just frustration, but presents material operational risks for the funder’s business.

Operational Risks Arising from Oversight Gaps

When a funder’s oversight of a law firm loan is weak, several operational risks arise:

• Unexpected Burn-Through of Capital: Perhaps the most immediate risk is that the loan capital is spent far faster, or in different ways, than anticipated. For instance, if a firm draws funds quarterly, a lender expects those tranches to last through certain case phases. If the firm quietly exhausts the money early (e.g. due to unplanned motions, expanded discovery, or simple inefficiency), the funder might only discover the shortfall when the firm comes asking for an advance ahead of schedule. This unexpected burn-through leaves the funder scrambling – do they extend more credit to keep the cases going, or risk the cases stalling? Either scenario can impair the fund’s liquidity and returns. Real-world examples abound: law firms in mass tort campaigns have ended up “trapped in [a] cycle of debt as cases drag on” forced to refinance loans because litigation took longer than expected². Such situations reflect directly on oversight failures in monitoring burn rate.
  
  

• Inability to Manage Portfolio Allocation: Litigation funders typically manage a portfolio of investments. If one loan silently devours more capital or time than budgeted, it can throw off the portfolio’s balance. The funder may have allocated only X amount to that deal and Y to others; overruns can force reallocation, potentially starving other cases of resources or breaching the fund’s concentration limits. Lack of oversight thus undermines strategic capital management. In extreme cases, it could even violate investment guidelines (for instance, if a loan passes a concentration threshold unexpectedly). Funders need predictable deployment to plan their overall portfolio financing – surprises make that very difficult.
  
  

• Delayed or Impaired Investor Reporting: Funders who themselves have investors (such as limited partners in an investment fund, or shareholders if public) face pressure to report on how investments are performing. Oversight gaps with law firm loans mean the funder has little to report – or worse, only bad news to report after the fact as they scramble to explain the effect on the fund in the aftermath of a key case outcome. Because information from the field may be limited, the fund manager might provide only high-level updates to investors (“the cases are progressing”) without hard data on timelines or budgets. This can erode investor confidence. Moreover, if a major problem is revealed late (say a loan default or huge budget overrun), fund managers may have to explain why they didn’t spot the issue sooner. In an era of increased fund governance, such blind spots are unacceptable. Fund managers are expected to have robust risk monitoring in place, so lapses here can become reputational risks and governance issues.
  
  

• Difficulty Identifying Troubled Loans Early: Ultimately, insufficient oversight means troubled loans aren’t flagged until they’re in deep trouble. A law firm that is underperforming – perhaps not signing as many cases as planned, or losing key motions that diminish case value – might still be drawing loan funds in the meantime. If the funder isn’t closely tracking case progress relative to spend, they might miss the warning signs of a loan that’s veering off-course. Early indicators like mounting legal spend with little advancement, or continually extended case timelines, can foreshadow that a loan will not be repaid on the expected schedule (or at all). By the time a default or major setback surfaces publicly, the window to mitigate risk (for example, by capping further disbursements or renegotiating terms) may have closed. Early detection of such trouble could allow a funder to intervene or hedge their position.

In short, poor oversight turns funders into passive passengers on the journey, hoping the driver (law firm) gets to the destination on time and on budget. That’s not a comfortable position for anyone managing financial risk. The good news is that litigation financiers are not powerless here – both contractual and technological mechanisms can help tighten control without infringing on lawyer independence or client privilege.

Better Oversight Mechanisms: Milestones, Phases and Controls

Funders have learned from experience and are deploying several mechanisms to manage law firm lending more effectively. Key strategies include:

• Milestone-Based Drawdowns: Rather than disbursing a large lump sum and crossing fingers, funders tie drawdowns to specific case milestones. For example, a portion of the loan might be released when a lawsuit is filed, another portion at the close of discovery, another at the summary judgment stage, etc. This approach ensures that the law firm receives funding in step with actual progress. If progress stalls, the funder can pause further advances. According to a practical guide by Woodsford, funders often “stage the funding for different phases of the litigation” and may even make part of the commitment contingent on hitting a threshold event in the case(s)⁵. This phased financing creates built-in checkpoints where funders can reassess viability before committing more capital.
  
  

• Disbursement Controls and Escrow: In some arrangements, funders maintain more direct control over disbursement of funds. Instead of transferring money straight to the law firm’s general account, the capital might be held in a dedicated escrow or managed account. The firm then requests funds for specific expenses, often with documentation. Some legal finance firms use their own internal systems to manage this. By controlling the purse strings in real time, funders can ensure money isn’t diverted and that it flows only as needed, and maintain full traceability of use of funds.
  
  

• Budgeting and Portfolio Caps: A straightforward but important tool is enforcing strict budgets at the case and portfolio level. Lenders now often require borrower firms to submit detailed litigation budgets up front. These budgets outline expected costs per phase of each case in the portfolio. The funding agreement can then cap the total funding at that budget (with any increase requiring lender approval). Some funders may also cap their exposure per case or set a “stop-loss” point – if a case exceeds its budget by, say, 10%, the funder has the right to halt funding or renegotiate. While law firms once resisted such oversight, it’s increasingly common as part of professionalising litigation finance. Standardising the budget framework also helps in getting consistent updates. When every firm reports spend vs. budget in the same format, a funder can quickly identify any over-budget lines.
  
  

• Standardised Borrower Reporting: To tackle the inconsistent data issue, funders are moving toward standard reporting templates for their law firm borrowers. By demanding a uniform level of detail, the funder can compare performance across different firms in their portfolio. Some funders even incorporate covenants in loan agreements about reporting frequency and content. While the stereotypical industry view is that lawyers are allergic to admin and luddites when it comes to technology, we’ve found in our conversations with law firms that most recognise that providing regular, structured updates is the trade-off for easy access to capital and are more than happy to use a well-designed user-friendly technology platform, providing it also offers a similar benefit to them - something we’ve been careful to build-in when designing the Fenaro Borrower Portal. Indeed, regular reporting can benefit law firms too, by highlighting to their own partners if a case is off-plan versus available capital before it’s too late.

Each of these mechanisms, in essence, buys the funder more visibility or control over the use of their money. Milestone funding creates natural transparency points (you see if the milestone is achieved or not). Disbursement controls make spend visible expense by expense. Budget caps and reporting enforce accountability. Crucially, none of these require the funder to interfere in the lawyer’s strategic decisions (which is something funders avoid to maintain ethical boundaries). Instead, they operate on the financial side – overseeing the flow of funds and the quantifiable progress of the litigation. This preserves the lawyer’s independence in legal tactics while still protecting the funder’s economic interest.

The Fenaro Borrower Portal: Real-Time Visibility and Workflow

Fenaro has shaped the Borrower Portal through speaking to many lenders with the objective of improving oversight and loan control, connecting funders and law firms on a shared system, and providing tangible benefits to the law firm that encourage their engagement in the process. Fenaro aims to solve the visibility gap by providing a single, common source of truth for loan deployment, case progress, and reporting data:

• Real-Time Loan Burndown: Through the Borrower Portal, law firms can connect their case management systems or upload their case expenses and time spent as they incur them. Firms and funders then see exactly how much of each drawdown within each loan has been used and on which matters, in real time.
  
  

• Milestones and Alerts: Funders and firms can input key milestones and budget thresholds into the system. The portal can then send automatic alerts when, say, a case budget reaches 80% utilisation, or if a milestone date passes without completion. Alerts provide early warnings to both the law firm and funder to take action (e.g. revise the budget or inject more funds if justified, or conversely, rein in spending). Proactive notifications and dashboards essentially create an early warning system for overruns, addressing one of the biggest oversight gaps.
  
  

• Standardised, Effortless Reporting: The Fenaro Borrower Portal is designed to standardise the reporting process and make it less manual, reducing administrative overhead for both parties. Rather than drafting a bespoke email, PDF or Excel update every month, the law firm can provide data through the portal or via API connectivity to their case management systems. This greatly reduces the manual effort in preparing reports and ensures nothing falls through the cracks. The portal essentially acts as a collaboration workspace, keeping everyone on the same page.
  
  

• Collaborative Workflow & Requests: Another benefit is streamlining workflows like drawdown requests or budget change approvals. Instead of back-and-forth emails, the firm can submit a drawdown request through the portal, which the funder can approve online. All key documentation and collateral case data can be attached and stored in a single source of the truth with the loan. This not only saves time but also creates an audit trail. By moving these interactions into a shared system, both parties have a clear record of communications and approvals (who, what, when and why) reducing misunderstandings and aligning expectations.
  
  

• Secure Data Sharing: Given the sensitivity of legal case information, the portal is designed with security and permissions in mind, giving law firms control to share necessary data without breaching privilege on case strategy. Role-based access ensures, for example, that a funder sees the spend and timeline, but not the lawyer’s confidential work product. Fenaro builds-in bank-grade security and encryption by design, which helps build trust that using the portal won’t compromise the case — something many lenders we spoke to considered a critical step forward from current email-based processes that present significant GDPR risks.

Fenaro is an operating system for complex legal assets, integrating operational and case data with a robust loan management system, and pioneering in the borrower–lender visibility space for litigation financing. The Borrower Portal functionality supports this by empowering a funder to essentially outsource a lot of the heavy lifting to technology – the system keeps an eye on the clock and the cash, so the funder can focus on higher-level portfolio strategy.

The borrower portal concept aligns incentives nicely: law firms benefit by spending less time compiling reports and by potentially accessing funds faster through an organised system; funders benefit by gaining transparency and reducing the risk of nasty surprises. It transforms what was often an adversarial dynamic (“Did you really spend that £100k on expert fees? Show me the receipts!”) into a more collaborative partnership built on a common view of shared data.

A New Era of Governance and Digitalisation

The push for better oversight in law firm lending is part of a broader trend in the legal finance industry toward increased professionalism, governance, and use of technology. Globally, litigation finance is growing up. Institutional investors – from pension funds to sovereign wealth funds – now allocate capital to this asset class⁶, and they bring with them a demand for higher standards in risk management. Fund managers can no longer operate on gut feeling and sporadic updates; they must implement robust systems and controls, much as a bank or private equity fund would when monitoring loans and investments. Enhanced oversight mechanisms like those discussed are becoming the norm to meet investor expectations of prudence and accountability.

We also see regulators and industry bodies focusing more on transparency. In some jurisdictions, there are calls for disclosure of litigation funding arrangements in court proceedings (to shed light on who is financing lawsuits). While those debates continue, within the funding relationship itself there is an unmistakable move towards greater transparency between funder and funded. After all, if funders expect courts to allow their secret involvement, they in turn must act transparently and responsibly with their own stakeholders. Good oversight of law firm loans demonstrates that litigation funders are managing capital diligently, which can only help the industry’s reputation in the long run.

Finally, the digitalisation of the legal industry provides a supportive backdrop. Law firms themselves are modernising (albeit gradually), adopting legal project management principles and digital tools to run their practices more efficiently. The idea of tracking time and costs against a budget is no longer alien, even in law. Many firms now use practice management software that can feed into the Borrow Portal without creating additional administrative overheads. Additionally, as remote work and virtual collaboration become routine (accelerated by recent global events), lawyers are more accustomed to sharing information online in secure environments. All this means the cultural barriers to using a borrower portal or adhering to a structured reporting process are lower than they might have been a decade ago.

Conclusion

“Stop the clocks” is an apt rallying cry for funders dealing with law firm lending. By improving oversight – through milestone-based financing, tighter reporting, and innovative borrower portals – funders can rein in the ticking clock of burn rate and delay that threatens their returns. The relationship between litigation funders and law firms is evolving from a simple hand-over-of-cash to a more transparent partnership with shared responsibility for success. Funders who embrace these oversight tools will be better positioned to manage risk and allocate capital efficiently, keeping their investors happy and their portfolios healthy. Law firms, on the other hand, stand to gain through clearer expectations, potentially lower funding costs (if oversight reduces risk, funders can price the loans more attractively), and a more trust-based relationship with their financiers.

In the global context, as litigation funding matures, those funders who implement strong oversight measures will differentiate themselves as prudent stewards of capital in an increasingly competitive market. They will also contribute to the legitimacy of the industry by showing that third-party funding can be done responsibly, without wild-west opacity. The trend is clear: whether driven by internal risk management or external pressure, litigation funders are upping their governance game. The days of “hands-off” lending to law firms are fading. In their place, a new model is emerging – one of collaborative oversight, powered by data and technology, ensuring that when funders lend to law firms, everyone remains accountable and on track. It’s about time.

About Fenaro

Fenaro is the platform for managing operationally complex assets - built from the ground-up to meet the complex needs of litigation funders. Find out more at Fenaro.com.

Fenaro is onboarding now, book a demo today and see how we can help your fund move to a new model of collaborative oversight with law firms, powered by data and technology.

Sources

1. Legal Funding Journal, Litigation Finance 101 (n.d.) – highlights that litigation funding gives plaintiffs’ lawyers “time on your side”, allowing them to endure drawn-out tactics since the funder covers the bills
   https://legalfundingjournal.com/litfin101/everything-ever-wanted-know-litigation-finance/

2. Third-party litigation funding: a call for disclosure and other reforms to address the stealthy financial product that is transforming the civil justice system. Mark Behrens. Cornell Journal of Law and Public Policy.
   https://community.lawschool.cornell.edu/wp-content/uploads/2025/03/Behens-final.pdf

3. Why Law Firms Aren't Accountable to Basic Budget Discipline, and What Management Should Do About It — Managing Legal — June 16, 2023
   https://www.managinglegal.com/why-law-firms-arent-accountable-to-basic-budget-discipline-and-what-management-should-do-about-it/

4. What a fund manager should know about entering the litigation finance industry. Schulte Roth & Zabel LLP. Stephanie R Breslow and Boris Ziser.
   https://www.srz.com/a/web/164027/What-a-Fund-Manager-Should-Know.pdf

5. A Practical Guide to Litigation Funding. Woodsford.

https://woodsford.com/wp-content/uploads/2022/09/A-Practical-Guide-Litigation-Funding.pdf

1. What You Need to Know About Third Party Litigation Funding. Institute for Legal Reform.
   https://instituteforlegalreform.com/what-you-need-to-know-about-third-party-litigation-funding/