What Is Advance Funding?

Advance funding is any advance made on a future commitment or payment. The term advance funding is used very broadly and can involve a wide assortment of financial scenarios ranging from personal or project loans, future contractual payments like annuities or royalties and government appropriations.

Advance funding can take a variety of different forms. Some examples of advance funding are: payday loans, viatical settlements, and lawsuit settlement advances. Usually, advance funding would involve an assignment of the contract or series of payments due in the future, or waiver of the amount of those payments sufficient to repay the advance. In most cases, the advance funding will be discounted for some imputed amount of interest.

Advance funding is also used to refer to the ongoing process of accumulating designated money to fund an account for future benefits, such as for a retirement plan.

Understanding Advance Funding

Many people have probably heard of the lawsuit funding concept, as commercials for these services run frequently on many televisions stations. Someone who is a plaintiff in a lawsuit may apply for advance funding to cover their living expenses or for other purposes while they are waiting for their anticipated settlement or the damages they may be awarded. In some cases, this advance payment can be used to cover the costs of surgeries or other medical treatments the injured or affected party may need.

Artists, writers, producers, and others involved in the creation or publication of artistic or literary works also frequently receive a form of advance funding. In this case, they receive an initial, upfront payment that is structured as an advance against future royalties or the anticipated proceeds from future sales.

Businesses may also use vendors that provide payroll funding services. Payroll funding can be beneficial to companies that experience cash flow issues and need to keep the payroll process running smoothly and consistently. This type of funding is also commonly used by staffing services. The payroll funding services provide this capital by offering credited based on the business’ assets. Applicants would need to meet certain criteria and receive approval for the advance before they receive any money. 

As the different types of advance funding structures run the gamut, so too do the terms and conditions associated with these financial arrangements. The qualifying requirements, interest rates and fees, and obligations of the person or entity receiving the advance funding can vary widely depending on the situation.