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Retirement Planning Annuities

Advance Funding

By Julia Kagan

Updated December 19 2021

Reviewed by Marguerita Cheng

What Is Advance Funding?

Advance funding refers to any advance that is made to the future of a agreement or payment. The term”advance funding” is broadly used and may refer to a broad assortment of financial scenarios that range from personal or project loans, future contractual payments, such as royalties or annuities and also the appropriations of government.

Advance funding comes in various forms. Some examples of advance funding include: payday loans, viatical settlements and settlement advances for lawsuits. Usually, advance funding would require an assignment of the contract or sequence of payments to be made in the future or a cancellation of the due payments to cover the loan. In most cases the advance is discounted to reflect an imputed amount of interest.

Key Takeaways

Advance funding is any advance on an upcoming obligation or payment.

The term advance funding is used very broadly and can involve a wide array of financial scenarios, ranging between personal and project loans and future contractual payments like royalties or annuities, as well as the appropriations of government.

Examples of advance financing are: payday loans, viatical settlements, and lawsuit settlement advances.

Advance funding is also described as the continuous process of building specific funds to finance the account to pay for future benefits for example, a retirement plan.

Understanding Advance Funding

Many people have probably heard about the idea of lawsuit funding because commercials for these services run frequently on television stations. A person who is defendant in lawsuits may request advance funds to help cover the cost of living or other expenses in the meantime they await the anticipated settlement or damages that they could be awarded. In some instances, this advance payment can be used to pay for the cost of surgery or other medical procedures an injured or afflicted victim may require.

Producers, writers, artists, and others involved in the creation or publication of literary or artistic works often receive an advance payment. In this instance, they receive an initial upfront payment that is structured as an advance to future royalties or profits generated by future sales.

Companies can also engage with suppliers who offer payroll financing services. Payroll financing can be advantageous to businesses that have cash flow problems and want to keep the payroll process functioning smoothly and regularly. This type of funding is also utilized by staffing services. The payroll funding services provide this capital through credit according to the company’s assets. Candidates must meet certain criteria and obtain approval prior to receiving any cash.

As the different types of advance funding structures run all over the place, so do the terms and conditions that are associated with these financial arrangements. The requirements for qualifying, the fees and interest rates and obligations of the person or entity receiving the advance money can differ significantly based on the particular circumstances.