SMEs vs Giants: How Litigation Funding is Leveling the Legal Playing Field

“Justice should not be reserved for those who can afford it - it should empower those who deserve it.”  

Why do so many small and medium-sized enterprises (SMEs) hesitate to seek justice when wronged by a larger entity? Is it the towering legal fees? The prospect of years entangled in court? Or simply the fear of provoking a corporate giant? For far too long, justice has favored those with deeper pockets. SMEs, despite being the backbone of innovation and economic growth, often find themselves cornered, unable to afford a legal fight. But what if there was a way to flip the script? 

Welcome to the world of litigation funding, a financial game-changer, a transformative solution that allows businesses to assert their legal rights without draining their resources. This innovative model is not only opening doors for SMEs to challenge industry giants but is also rewriting the dynamics of commercial disputes. Now, David doesn’t just have a slingshot; he has a team, strategy, and financial support. 

The Power Imbalance: A David vs Goliath Dilemma 

For decades, large corporations have had an inherent advantage in litigation. They possess in-house legal teams, can afford top-tier law firms, and have the capital to endure drawn-out legal proceedings. In contrast, SMEs often operate on thin margins, where even a short legal battle can pose an existential threat. 

The imbalance becomes particularly stark in cases involving: 

• Patent/IP infringement: where larger players often infringe upon SME innovations, assuming litigation would be unaffordable. 

• Delayed payments and breach of contract: where SMEs face lengthy payment delays from enterprise clients. 

• Unfair trade practices: where dominant players exploit loopholes or intimidate vendors with legal notices. 

  
  

Without a financial cushion, SMEs historically had little choice but to abandon these fights or settle for pennies on the dollar. 

According to a 2024 report by India SME Forum, over 65% of Indian SMEs avoid pursuing valid commercial claims due to cost constraints and fear of retaliation from larger parties. 

Furthermore, the average litigation timeline for commercial disputes in Indian district courts exceeds 1,145 days, based on National Judicial Data Grid (NJDG) findings. These delays worsen the financial strain for smaller businesses. 

What is Litigation Funding, and Why It Matters 

It is a non-recourse financial solution that covers the legal expenses of claimants, typically SMEs who have strong claims but lack the resources to fight them. A third-party funder (usually an investment firm) provides capital for: 

• Legal fees 

• Court costs 

• Expert witness charges 

• Even if adverse costs if the case is lost 

  
  

Since it’s non-recourse, the SME repays nothing if the case fails. This risk-sharing model ensures access to justice is determined by the strength of a claim, not the size of a company’s wallet. 

Imagine a tech startup spending years developing proprietary software, only to see it copied by a multinational corporation. Without it, the startup would either walk away or bankrupt itself fighting back. With funding, it gains the power to engage top-tier legal counsel and demand accountability without risking financial ruin. 

Leveling the Field: The Rise of Litigation Funding for SMEs 

It allows third-party investors to cover the legal expenses of a claimant (here, the SME) in exchange for a share of the potential settlement or judgment. This means that businesses with valid legal claims no longer need to bear the costs or risks of litigation on their own. 

The benefits are manifold: 

• No Upfront Legal Costs: Funders typically cover lawyer fees, court costs, expert witness expenses, and more. 

• Risk Transfer: If the case is lost, the SME owes nothing, eliminating financial risk. 

• Strategic Legal Support: Many funders offer strategic insights and access to a network of legal experts. 

  
  

Importantly, funders conduct detailed due diligence before investing in a claim. This ensures that only meritorious cases are supported, boosting efficiency in the justice system while discouraging frivolous litigation. 

Real-World Success Stories: SMEs That Took on the Giants 

Case Study 1: A Pharma Startup vs a Global Manufacturer 

An Indian pharmaceutical SME developed an innovative drug formulation and entered into a licensing agreement with a multinational manufacturer. After a few years, the MNC terminated the agreement unilaterally and launched its own version of the same product. The SME lacked the means to sue for breach of IP and confidentiality. 

With the support of legal finance, the startup filed a commercial suit and was able to match the MNC's legal resources in court. After two years of litigation, a favorable out-of-court settlement was reached, giving the startup both compensation and global recognition. 

 “We had all the proof, but no way to take on a global corporation until we got funded. That changed everything.” - Founder, Pharma SME 

 

Case Study 2: Tech Vendor vs Retail Chain 

A SaaS-based logistics automation company had a contract with a major retail chain. The chain abruptly terminated the agreement and failed to pay several outstanding invoices worth ₹80 lakhs, citing performance issues. The vendor attempted negotiation but was stonewalled. 

A litigation funder evaluated the claim, found it valid, and backed the legal proceedings. The case was escalated to arbitration, where the SME won not only the 100% pending dues but also damages and legal costs. The win also positioned them as a company that stands its ground, boosting credibility in future B2B partnerships. 

“They thought we’d fold. We almost did - until we brought in a funder.” - CTO, funded logistics tech firm 

Case Study 3: Female-Led Apparel Brand vs Global E-commerce Platform 

A bootstrapped, female-led fashion label noticed that one of its signature designs was being mass-produced and sold by a global e-commerce giant without permission. Filing a copyright and design infringement case seemed impossible given the budget constraints. 

LF changed the game. Armed with funding and a strong legal team, the brand not only sued but used the case to gain media coverage, attract new customers, and secure a favorable court order. 

"Funding empowered us to protect what we built. We weren’t just fighting for our design - we were fighting for survival." - Founder, funded apparel brand 

The Business Case for Funding: Not Just Justice, But Growth  

For SMEs, pursuing a legal case is not just about justice; it’s also about survival and business continuity. Here’s how it delivers real value: 

By enabling SMEs to transform legal claims into actionable financial recoveries, legal finance is turning legal distress into a strategic opportunity. 

A 2023 FICCI survey found that 38% of SMEs engaged in unpaid dues or contract breach cases experienced revenue losses exceeding 20% of annual turnover. However, those with third-party financial support were 4x more likely to recover over 75% of their claim value. 

Why Litigation Funding is Gaining Ground in 2025: A shift in legal culture and funding dynamics 

As of late 2024, India’s alternative legal financing market was estimated at ₹1,200 crore, growing at a CAGR of 18%, with rising interest from institutional investors, per a study by BW Legal World. 

Globally, litigation finance surpassed $15 billion in committed capital, with the UK, US, and Australia leading adoption. In India, Tier-I law firms have begun actively partnering with funding platforms to support SME cases. 

Legal Finance is no longer a niche service; it’s becoming mainstream, especially in legal systems like India, the UK, Australia, and Singapore. Several trends are driving its popularity: 

• Tightened cash flows: for SMEs post-COVID and during funding winter. 

• Court delays: prompting the need for more efficient legal processes. 

• LegalTech platforms: simplifying case evaluation and funder matching. 

• Increased investor interest in non-correlated asset classes like litigation. 

• Positive regulatory outlook: in jurisdictions like India, the UK, and Singapore. 

  
  

This convergence of demand, technology, and capital has turned it from an emerging trend into a powerful global movement. 

Challenges and Considerations for SMEs Seeking Funding 

While it offers clear advantages, SMEs should consider: 

• Choosing the right funder: Reputation, transparency, and alignment of interests matter. 

• Understanding the terms: Know the funder’s cut, case control clauses, and reporting obligations. 

• Preparing strong documentation: Contracts, communications, and financial evidence are crucial for funder evaluation. 

  
  

Not every case will be eligible, but for those that are, the benefits can be transformative. 

A 2024 study by NASSCOM and Grant Thornton reported that nearly 52% of SMEs in India hesitate to pursue legal action even in high-stakes disputes due to lack of clarity on funding mechanisms, contractual enforcement, and procedural complexity. 

Additionally, SMEs that did receive structured legal financing or third-party support were 3.7 times more likely to pursue their claim to final resolution rather than settling early. 

Looking Ahead: A Fairer Legal Battlefield 

As LF continues to evolve, it's clear that its role goes far beyond financial assistance. It is, fundamentally, a tool of empowerment. For small and medium businesses, it opens a door that was long closed - not only to justice, but to growth, recognition, and resilience. 

In 2025 and beyond, it is leveling the legal playing field by enabling entrepreneurs and small businesses to fight for what’s rightfully theirs without being outmuscled by deeper pockets. 

Conclusion

In a business world where power has often equated to size, litigation funding is leveling the legal playing field, allowing merit to prevail over money. SMEs no longer need to walk away from justice because of budget constraints. 

From reclaiming unpaid dues and defending innovations to fighting unfair practices, funded legal action is enabling small businesses to protect their interests, strengthen their reputation, and grow with confidence. 

The legal system is no longer just a domain for the deep-pocketed; it’s becoming a fair and accessible arena for all. And that’s a win not just for SMEs, but for justice itself. 

At LegalPay, we stand with the underdogs. We provide the critical capital needed to pursue high-stakes claims, allowing you to focus on your business while we fund your fight.  

With our support, justice is no longer out of reach it’s your next strategic move. 

Contact Us

FAQ’s  (Frequently Asked Questions)

1. What financial options are available for SMEs to pursue legal action? 

any small businesses hesitate to go to court due to the enormous expenses involved. However, there are now financial arrangements available that allow them to cover legal costs without paying upfront. In these setups, an external party takes on the financial responsibility for lawyer fees, expert witnesses, and other litigation expenses. The SME only shares a portion of the awarded amount if the case is won. This ensures that justice isn’t limited to those with deep pockets. These solutions are particularly useful for contractual breaches, payment disputes, or unfair practices where the SME has a strong claim but limited cash flow. Such models are changing how small businesses think about legal disputes turning them from risky gambles into viable paths toward justice. In effect, SMEs are now able to engage professional legal help, without letting costs stand in the way of what’s rightfully theirs. 

2. Why do small businesses avoid taking legal steps against big players? 

The fear of prolonged court battles, high legal expenses, and retaliation from powerful counterparts often discourages small and mid-sized businesses from asserting their rights. Most SMEs operate on lean budgets and can't afford expensive legal teams or endure years of courtroom delays. Larger corporations, on the other hand, are well-equipped to stall proceedings or overwhelm opponents with costly tactics. This imbalance often forces the smaller party to settle early or walk away entirely even when they’re in the right. There's also a reputational fear: challenging a known player could jeopardize future partnerships. However, with newer financial and strategic options available to support such cases, this dynamic is changing. SMEs are increasingly realizing that they can seek fair outcomes and accountability without draining their business resources. The key lies in exploring solutions that minimize financial exposure while maximizing the chances of a fair legal outcome. 

3. What types of business disputes are eligible for third-party financial support? 

External backers generally support commercial disputes that are high in value, backed by strong evidence, and have a reasonable chance of success. This includes contract breaches, delayed or withheld payments, intellectual property theft, unfair trade practices, and confidentiality violations. The dispute should ideally involve a quantifiable financial loss, and the defending party must be solvent enough to pay damages if the case is won. These supporters carefully evaluate each case before committing, often working with legal and financial experts to validate the claim’s merit. Arbitration matters, especially those involving clear-cut contractual issues, are also attractive for such support. For SMEs, this means they don’t have to abandon valid claims just because the other party is large or resource-rich. By leveraging external capital, they can assert their rights with confidence. However, not every case qualifies it must be legally strong, commercially viable, and well-documented. 

4. How do third-party supporters assess whether a business claim qualifies? 

When an SME seeks financial assistance for a legal matter, the supporting entity conducts a thorough evaluation before offering help. The key factors they assess include the legal strength of the case, availability of evidence, amount of damages involved, and the opposing party’s ability to pay. They also examine the jurisdiction, expected timeline, and risk of counterclaims. A solid case backed by contracts, communication records, invoices, or IP registrations has a better chance of approval. In some instances, experts are consulted to validate the commercial and legal aspects. If the case meets the criteria, the third-party covers expenses and guides the SME through legal proceedings. Importantly, the business retains ownership of the claim and can work closely with its legal team. For eligible SMEs, this method unlocks access to justice without straining resources. But it’s crucial to be transparent, organized, and legally prepared when applying. 

5. What are the benefits of using external capital to pursue legal claims? 

Small businesses often face a dilemma: they have a strong legal claim, but the cost of pursuing it is prohibitive. That’s where outside financial support offers a game-changing advantage. By covering upfront legal costs, this approach eliminates the budget barrier entirely. Another major benefit is that the SME bears no financial risk if the case is lost only the funder absorbs the loss. Additionally, some supporters provide strategic inputs and connect businesses to experienced legal professionals. This backing gives the SME confidence, improves its negotiation position, and often results in faster settlements. It also protects cash flow, allowing the business to focus on operations rather than financing a lawsuit. Moreover, it enhances the SME’s image, showing customers and partners that the business stands up for itself. In short, this model allows merit to speak louder than money, giving smaller firms a fair shot in commercial disputes. 

6. Are there any risks or things to be cautious about when using legal funding alternatives? 

Yes, while these financial models offer clear advantages, SMEs should be aware of a few things. Firstly, the backer usually takes a percentage of the final recovery if the case succeeds so the business won’t receive the full amount. Secondly, agreements may include conditions related to reporting, case updates, or settlement negotiations. It’s important to read the fine print and ensure there’s alignment between both parties. Additionally, these funders typically invest only in strong, high-value claims  so less clear-cut cases may be declined. The process may also require detailed documentation, legal reviews, and upfront preparation. While the SME doesn’t carry financial risk, there may still be reputational considerations or delays. That said, reputable supporters operate with full transparency and focus on empowering the claimant. As with any financial decision, businesses should consult legal advisors before signing. Done correctly, this approach can be a powerful tool for accountability and growth. 

7. How does LegalPay help small businesses facing large-scale disputes? 

LegalPay provides crucial capital support for small and mid-sized enterprises navigating complex commercial disputes. It steps in when a business has a strong case but lacks the resources to pursue it fully. It evaluates the claim, checks the legal strength and documents, and if viable, covers the full cost of the proceedings. Beyond funding, the platform offers access to seasoned legal experts and helps businesses choose the right legal strategy, whether it's court litigation or arbitration. Its model is risk-free for the SME: repayment is only required if the outcome is favorable. This allows businesses to maintain operational continuity while their claims are pursued professionally. It also brings credibility when a claim is backed by an experienced platform, it signals seriousness to the other side. Whether it's an unpaid invoice, IP theft, or a broken contract, At last it equips businesses with both the strength and strategy to fight back.