Funding legal costs or a settlement payment for your business

Legal disputes rarely end with a clean victory. Far more often, they end with a negotiated figure, a signed deed and a date by which the money has to be paid. For a business that’s been distracted by a dispute for months, that date can arrive before the cash is ready. Add your own lawyer’s account, which may have been building quietly in the background, and the total can be larger than any single bill the business has faced.

This page looks at funding both: the settlement you’ve agreed to pay and the legal costs that came with getting there.

What kinds of disputes end in a payment?

The businesses we hear from are usually settling one of these:

• Commercial disputes with a customer, supplier or subcontractor over defective work, unpaid invoices or a broken contract
• Lease disputes over make-good, unpaid rent or an early exit
• Partnership or shareholder disputes, where one party is bought out or compensated
• Employment matters, including back-pay and settlement of claims by former staff
• Building and construction claims, often about defects or variations
• Franchise disputes, sometimes ending in a payment as part of an exit

Each one is a business purpose, so each can be funded with business finance. What changes is how quickly the money is needed and how certain the amount is.

Why the deadline in the deed matters so much

A settlement deed isn’t just a promise to pay. It often contains terms that make missing the date costly:

• A firm payment date, sometimes only days or a couple of weeks after signing
• Agreed or consent judgment clauses, where the other side can have judgment entered for a larger figure, sometimes the full original claim, if you default
• Release conditions, so the other party’s release of claims only takes effect once payment clears
• Interest or costs that start running on any late amount

That’s why speed and certainty count for more than the last dollar of price when funding a settlement. A loan that settles a week after the deadline can cost far more than the difference between a fast lender and a cheap one.

If you haven’t signed yet, there’s an opportunity here. A creditor offered a funded lump sum, paid on a set date, will often accept less than the same claim spread over many months. Arranging finance before the final round of negotiation gives your lawyer a firmer hand. Our page on responding to a statutory demand covers a closely related deadline problem.

How much should you borrow?

Settlement amounts are fixed once the deed is signed. Legal costs are less certain, which is where the costs disclosure rules help.

In New South Wales, Victoria and Western Australia, the Legal Profession Uniform Law requires lawyers to give clients an estimate of total legal costs, and a full written disclosure where costs are expected to exceed $3,000. The estimate can be a range, with an explanation of what drives it. Other states have their own disclosure rules. Ask your lawyer for:

1. What’s owed right now, including disbursements such as barristers and experts.
2. What’s still to come, stage by stage, if the matter isn’t finished.
3. Whether any costs order affects you, either costs you’ve been ordered to pay the other side or costs you may recover.

Then size the loan from the settlement figure, plus legal costs due now, plus the lender’s own fees, plus a small buffer. Don’t borrow for stages that may never happen. If the matter could run on, consider a facility you can draw on later instead.

Facing a settlement date? Share the figure and the due date with us so we can check what’s achievable in time. The form is quick, and asking doesn’t touch your credit file.

Which kinds of finance fit legal costs and settlements?

Option	Speed	Security	Typical fit
Caveat loan	Very fast, often days	Property, via a caveat	A hard settlement deadline and equity in property
Second mortgage	Fast	Property, registered behind the first mortgage	Larger settlements or a longer repayment period
Unsecured business loan	Fast for trading businesses	None, usually a director guarantee	Smaller amounts repaid from cash flow
Short-term business loan	Fast	Varies	Bridging until a known receipt, such as a progress payment
Bank loan or overdraft increase	Slower	Often property or business assets	Strong businesses with time before the deadline
Payment plan with the other party	As negotiated	Sometimes a judgment or security	When the other side agrees and the instalments are affordable

Banks are often the cheapest option, and if your bank can approve in time, take the offer seriously. The challenge is usually timing: a deed that gives you ten days doesn’t suit a process that takes six weeks. Short-term property-secured lenders exist for exactly that gap. EquityTap, one of our own lenders, is an example; its lender profile describes short-term business facilities secured on property over one to twelve months. The loan can then be refinanced into longer finance once the dispute is behind you.

Plan the exit before you sign the loan

Every short-term loan needs a believable route to repayment. For a settlement loan, the usual exits are:

• Refinancing into a longer bank or non-bank loan once the dispute is resolved and the business’s finances are clearer
• A known receipt, such as a large contract payment, an insurance recovery or the sale of an asset
• Recovering costs from the other side, if a costs order is in your favour
• Business cash flow over a few months, for smaller amounts

Lenders will ask about this, and our glossary entry on exit strategy explains what they look for. Be realistic. Costs recoveries, in particular, can take a long time and rarely cover every dollar spent.

Tax: ask before you assume

Whether legal costs and settlement payments are deductible depends on the character of the dispute. Broadly, costs connected to earning the business’s ordinary income, such as recovering unpaid invoices, tend to be deductible, while costs tied to capital, such as defending title to an asset or the structure of the business, often aren’t. Settlement payments usually follow the same reasoning as the dispute behind them. Your accountant can tell you which side of the line your matter falls on, and that affects the after-tax cost you’re really funding.

Worked example: a Gold Coast builder settles a defects claim

This is an illustration only. Leanne’s building company has been in a dispute with a client over defects in a home renovation. After mediation, the parties sign a deed: the company pays $180k within 21 days, and if it doesn’t, the client can enter judgment for $260k. Leanne’s own lawyer has an outstanding account of $42k, and a barrister’s fee of $8k is due.

Item	Amount
Settlement payment	$180k
Own legal costs and barrister	$50k
Lender fees and legal costs (estimate)	$12k
Buffer	$8k
Loan required	$250k

The company’s bank is supportive but can’t approve and settle inside three weeks. Leanne owns an investment unit with plenty of equity. A private lender approves a $250k loan secured by a caveat over the unit, for nine months with interest capitalised, and it settles in four business days. The settlement is paid on day ten and the client’s release takes effect.

The exit is a refinance into a longer loan with her bank once the year’s accounts are finalised, supported by two large progress payments due over the next six months. Her accountant confirms that because the dispute arose from the company’s ordinary building work, the settlement and legal costs are likely to be deductible, which lowers the true cost of the episode.

Getting the dispute behind you

The relief of signing a settlement shouldn’t be undone by scrambling for the money afterwards. We regularly fund settlement payments and legal bills for businesses on tight deadlines, including where the bank is supportive but simply can’t move fast enough.

The enquiry is roughly a minute’s work, and making it has no effect on your credit history. We don’t hand your details to a roomful of lenders. A specialist reads your situation, including the deed’s deadline, and phones you to work through it. Accurate details on the settlement figure, the payment date and any property available as security help us find a route that meets the deadline the first time.

Fund my settlement before the deadline →