Each day hundreds of small business owners are sued by Merchant Cash Advance (MCA) companies. However, most small business owners do not know what to do. In fact, most small business owners who are sued by Merchant Cash Advance companies do not answer their lawsuits (over 90%) and end up with a judgement on both their business and themselves personally. This article identifies many things that happen and what to do when a small business owner is sued by a Merchant Cash Advance company.
By Thomas Tramaglini, Chief Operations Officer
Each day there are hundreds of lawsuits filed against small business owners. And in our line of work, we have learned that most small business owners have no idea what to do. While some small business owners are savvy with Merchant Cash Advances, when the music stops and they are left without a chair, not dealing with the MCA lawsuit can be harmful to their businesses and their personal wealth.
Therefore, we put together a list of different things that any small business owner should become aware of throughout the process.
First – It will be okay.
Because you are being sued, it does not mean you are going to get arrested or thrown in jail for defaulting. In fact, we see it all the time where brokers or lenders will threaten clients with criminal action if they do not pay immediately. Remember, these lawsuits are civil actions, not criminal. Outside of making your life miserable, a lot would have to happen before it ever became a criminal action.
In some cases, brokers or lenders have been found to threaten family members, clients, or the business owner directly with violence. Frankly, if this ever happens, contact the police immediately.
Rule of Thumb: We and You Care about what happens to you. The MCA companies do not.
When an MCA company sues you, you need to know one thing: Nobody on the other
side cares. This means that the MCA company, their attorney, and if they are working with a collections company want you to pay and that is it. Most of the people who are on their side have a bottom line: You pay back or use whatever legal means necessary to force you to pay them back.
We have seen the good, the bad, and ugly of the MCA collections business. In many cases, many of the MCA companies are placating their investors and use things like UCC freezes, judgements and more to recover what is due to them. Overall, these folks are very Machiavellian, and they will stop at nothing to get what is due to them, regardless of who the client is.
If you have not been harassed, you will be.
Brokers and MCA companies want you to pay them, and they will say anything to get you to do so. I do not want to stereotype everyone we know and have worked with this label, but many times these people can be brutal. Be ready if you have not been harassed to be harassed, several times per day, at night, morning, etc.
One of the benefits of working with our team is that we get these people off your back immediately, without recourse. Once we have reached out to the creditors, usually within hours they stop calling, texting, or emailing you.
Know Your Timeline to Answer the Lawsuit
In most cases, once you are served with the MCA lawsuit you have 30 days to respond to the lawsuit. If you live in the state where the lawsuit was filed (such as New York), the state gives residents 20 days to respond to the lawsuit. The most important thing is that you want to respond to the lawsuit regardless of the timeline.
UMM….”I didn’t get served”
We hear this all the time. “I did not get served.” Many times, small business owners waive the right to being served when they sign their MCA agreements. The best thing to do is check each MCA agreement (towards the end) for a clause which will tell you how the MCA company plans to send notice that you are being sued. Most of the time, MCA companies will mail in regular mail, mail via certified mail, or e-mail your notice to the small business owner. It is critical that you do not play games as you do not want to not respond to the lawsuit and arrive at a judgement.
You Must Retain an Attorney in the Venue Where You are Being Sued.
Many times, we hear the client tell us that they have an attorney. Remember, anyone getting sued must retain an attorney to defend themselves who is admitted to practice law in the State where the lawsuit was filed. That is, if the lawsuit is in New York, you cannot use an attorney from Texas unless they are admitted to practice law in New York (State).
Companies like ours have attorneys for this work and it is highly that you utilize one of our attorneys through one of our programs. Our attorneys are experienced in MCA law and know exactly how to handle any situation.
Answer Your Lawsuit with an Attorney
Most states require business owners to answer lawsuits using an attorney. There are self-answer lawsuit software solutions out there which you can use at a low cost but beware. Some states will not allow small business owners to self-answer lawsuits and most times when someone decides to answer a lawsuit by themselves, it turns into a judgement.
Brokers Who Funded You Want to Fund You More
There are brokers out there who want to get paid on your MCA and they do not get paid unless you make a certain number of payments towards your payback. If you were funded by a broker, they may call you and try to offer you more money. Sometimes, they will be successful.
However, if you cannot pay back what you have already, you are just digging yourself deeper into the hole you are currently in.
Be wary of working with Debt Settlement Companies Who Have an Attorney Network
There are debt settlement companies who offer attorney networks. Many companies claim to have a network of attorneys nationwide…
For instance, in a previous article we wrote…
This is just foolish. No MCA Settlement (or any company) has hundreds of attorneys nationwide. And good attorneys are worth their weight in gold.
For example, Shore Financial Solutions has this on their website:
“What happens if a creditor files a lawsuit?
Shore Financial Soluitons (Typo on Shore’s website) has an Attorney Network of 500+ local attorneys that handle all legal motions, as well as aid in the negotiations of your debts.”
Most of these attorneys will file an answer for a lawsuit if the business owner is sued but it’s not going to do much. When a summary judgement or some motion is forced by the MCA company, or you need a negotiator, I would not want one of the network attorneys who just push paper at your service.
Most good attorneys charge $400-$500 per hour. Our attorneys work for less but not much less. Networks like the “Sunshine Network” have (in our opinion) copy and paste attorneys which you pay $100 per month.
To the layperson it seems like a good idea. However, given the serious nature of a lawsuit, I would not want one of these attorneys representing anyone. This is not to say that some attorneys in the network are not good. However, I am saying that no attorney would charge $100 per month to defend someone in any serious manner.
Avoid Judgements
At all costs, avoid judgements. MCA companies file lawsuits in states that are friendly to their lawsuits, like New York. In NY, if you do not answer the lawsuit in the time allotted, a clerk from an attorney’s office can get the court clerk to sign the judgement order without notice.
And what makes this more costly, MCA companies sue the business but also the small business owner personally.
So, what does this mean?
With a judgement, the MCA company can commence collections by freezing and seizing assets, etc. Furthermore, some MCA lenders can easily take the judgement (if out of state) to your state (domestication) and use an expedited process to begin collection of assets. This can include bank savings, assets like jewelry, non-primary real estate, and more. Furthermore, these firms can invoke you to discovery proceedings by collecting bank statements, tax returns, and other items so you cannot hide your assets.
In more precise terms… You DO NOT want a judgement.
I was working with a debt settlement company, and they are handling it.
If you are working with a debt settlement company and they say they are handing the lawsuit, make sure that they are. This includes asking to speak to your attorney, see documents, and communicate your expectations. We have seen more times than not; the debt settlement company does not even know that there is a lawsuit.
Protect Yourself by Understanding UCC
The Uniform Commercial Code (UCC) is a group of laws that relate to commercial transactions that are accepted by all states in the United States. UCC filings are used by
lenders and Merchant Cash Advance companies to announce their rights to collateral or liens on a loan or tangible property.
Many times, the MCA company has filed a UCC lien against the small business owner and if someone has had a hard time paying back their MCA or stopped paying, they can expect that a UCC lien has been filed. This is something that many small business owners cannot get ahead of so if you are getting sued, use our tool to see if you have a UCC filed against you and contact us to learn what to do.
How can UCC liens affect your business?
UCC liens identify to others that you have a security interest lien.
Prevents additional borrowing.
Negative credit on your business credit
Assets that are pledged for recovery.
MCA Company Actions:
Harass your suppliers.
Harass your customers.
Freezing your customer payments
Freezing your assets
Freezing your bank accounts
Holding funds collected by your credit card processor.
Holding funds with a licensing agent
Many others...
Potentially inform employees, suppliers, etc.
When you are getting sued by an MCA company, they potentially may be reaching out to your clients, suppliers, employees and more. Make sure that you are prepared to deal with this. Such actions are usually allowed through your agreement or the UCC actions.
The team at Beacon can help you with letters, templates, etc. which you can use to stave off this from happening.
Report to business credit
When a small business is sued, it will usually show up on a Business Credit Report (Experian, Dun and Bradstreet, Equifax) and can show up on your personal credit report.
What this means is that you will be cut off from future borrowing.
Attempt to Work Out the Debt with The Attorney or MCA Company/Lender
When an MCA company sues a small business owner, we have found that the lawsuit is filed to 1) placate the investors of the MCA company or 2) to get clients to the table to repay their MCAs.
Those who decide to work directly with the MCA company can absolutely work out their settlement and help themselves. The issue with this is that those who do this have been sued, therefore they are at a disadvantage against an MCA lender and attorney and if something goes wrong before the payback is finished, it can be significantly harsher in the long run.
It is not suggested that anyone settle with an MCA company or their law firm on their own without consulting or retaining an attorney first.
Watch Out for Scams
When you are sued, be prepared to be scammed. Debt settlement companies will call you and attempt to tell you that you will save 80% towards payback or will punish the MCA companies. While we have seen upwards of 80% savings, we never use it as a tool to bring someone into our corporate portfolio. In fact, we find that if you are honest, show care, and are straight with the client, it goes a long way.
We recently wrote an article outlining some of the schemes used by debt settlement companies to help protect small business owners from scams. This article, Scams that MCA settlement companies use on vulnerable small business owners has been downloaded thousands of times and is a favorite of our clients.
Contact Beacon Client Solutions to better understand your situation and how we can help you.
Dr. Thomas Tramaglini is the Director of Operations and Negotiation for Beacon Client Solutions, a company that supports small businesses on a host of fronts, especially MCA debt. Thomas has been a small business owner for many years, as well as held leadership positions in several organizations and companies. Thomas holds a B.A. in History, as well as Masters and Doctorates in Organizational Leadership from Rutgers University, The State University of New Jersey.
Disclaimer: Beacon Client Solutions is not an accountancy, or a law firm. We are business consultants. While Beacon works with outstanding attorneys and accountants, we cannot and do not provide legal or tax advice. All of our work is connected to those who are legally certified to give such advice. Beacon does have a longstanding body of work in MCA resolution and understands what small business owners deal with, specific to MCA. Beacon Client Solutions serves clients in all 50 states, Puerto Rico, Mexico and Canada.
Comments