Banks have traditionally been the lenders of choice for small businesses, but there are alternatives — at least in the legal industry. 

Alternative asset management firm Legalist, which has $1 billion assets under management, is tapping AI within the origination process to offer litigation finance to its clients, Eva Shang, general partner and chief executive at San Francisco-based Legalist, told Bank Automation News. 

“As banks have pulled back on lending in recent years, especially regional banks, you have credit funds… that have emerged,” Shang said. 

Companies involved in ongoing litigation obtain loans from Legalist, she said. The company uses AI to determine which cases to invest in based on their likelihood of success. 

Legalist evaluates 50 million to 80 million civil court dockets annually and reaches out to 50,000 attorneys. Roughly 10% of the attorneys decide to work with Legalist and have the lender fund client litigation costs, she said. 

The AI determines the liability of the case based on whether or not a case has passed certain milestones including did it make it to trial or is there a motion to dismiss, she said. The technology can aggregate data based on the milestones and even the predisposition of judges to determine the likelihood of success of a case. 

“It’s a very interesting type of investing that wouldn’t be possible if we didn’t have technology on the front end to automate a lot of the case selection process,” she said. 

With a 70% success rate, Legalist funds both civil cases and business cases. Its model, created eight years ago, recently integrated LLMs, Shang said. 

Banks as the tech provider

While Legalist taps AI in the origination process, New York-based Esquire Bank serves as a bank and tech provider to its clients in the legal community, CEO Andrew Sagliocca told BAN.  

The branchless bank, which originates loans for small businesses and within the legal industry nationally, is working on a customized lending platform for the litigation market that is expected to roll out early 2025, Sagliocca said. 

The bank also offers the following capabilities to law firm clients: 

• Deposit solutions; 

• Case cost financing solutions; 

• Growth capital solutions; 

• Working capital solutions; and 

• Plaintiff solutions. 

— Additional reporting by Vaidik Trivedi