The far-reaching reverberations of COVID-19, the most disruptive pandemic in more than a century, have sent shock waves throughout the legal industry. Courts across the country have temporarily closed or suspended trials. Proceedings that would normally occur in person instead take place over video conference calls, governed by policies that evolve frequently. Law firms and in-house legal departments have implemented headcount reductions, salary cuts, or both. Finding itself in a position that was unthinkable just a few months ago, and with the disruption showing no signs of abating soon, the legal industry must now contend with a "new normal."

When the 2008 financial crisis rocked the global economy, the fallout for the legal industry quickly became apparent: litigation increased, and liquidity-challenged plaintiffs needed financial resources to pursue their claims. These realities, further exacerbated by tight credit markets and escalating legal costs, sparked a swift expansion of commercial litigation finance in the United States.

With widespread work stoppages fueling another economic downturn today, we anticipate a similar surge of undercapitalized plaintiffs seeking financial liquidity, risk reduction, and judicial access. Many commercial claimants with pending or ongoing litigation have already begun to explore their funding options. Others have just started to file cases that directly stem from the pandemic. What, then, lies ahead for the litigation finance industry? We lean on a mix of history, macrotrends, and our in-house experience in identifying four factors that will influence commercial litigation funding patterns in the months ahead.

Small Businesses and Law Firms Will Need Working Capital

COVID-19 has triggered a breathtaking economic downturn, with 22 million U.S. jobless claims made in the four weeks since broad restrictions were first implemented. Small businesses are especially vulnerable to the cash flow delays caused by the pandemic response. A recent U.S. Chamber of Commerce poll found that 24% of small businesses fear they will be forced to close permanently in the next two months. Furthermore, Chapter 11 bankruptcy protection and restructuring is often too expensive, time-consuming, and risky for small businesses to seriously consider.