Small business owners who have struggled with merchant cash advances or alternative loans often find it challenging to grasp UCC filings and actions taken against them, as well as comprehend legal proceedings. Despite both UCC filings and lawsuits being methods employed by MCA companies to reclaim funds, many small business owners lack understanding of these processes. Unfortunately, in numerous instances, they only realize this when it is already too late.
This article aids small business owners in making decisions by examining the differences between UCC actions and MCA lawsuits.
By Thomas Tramaglini, Chief Operations Officer
Partner, The Center for MCA Research
UCC and Legal Proceedings: A useful tool for MCA predators.
When a business defaults on their MCA, there are two plays which MCA companies typically have. Both are aimed at getting their funds.
These actions include filing and enforcing liens and filing lawsuits against the merchant and their business. Both actions are aimed at working to recover then funds that they have not received.
However, anyone needs to understand that the MCA companies DO NOT CARE:
About the business owner.
If the business goes under.
That their letters and actions hurt the reputation of the business, business owners, and their family.
If the business owner or his/her family cannot make ends meet.
What is a UCC Lien?
A UCC filing or lien are used by lenders and MCA companies to announce their rights to collateral, liens, or a secured interest. In the context of a Merchant Cash Advance, MCA companies will secure your receivables as a form of collateral using the Universal Commercial Code.
A UCC lien is nothing more than a legal form filed with the state Secretary of State (SOS) that announces that the lender or MCA provider has a secured lien on the business. Such actions allow the lender or MCA provider to seize and foreclose on the collateral or funds if the small business owner fails to pay what is due.
What is a UCC Action?
A UCC action is when an MCA company chooses to enforce the actions available to begin to recover the funds that you owe them.
UCC actions can include:
Freezing your bank accounts (personal and business).
Restraining your ACH and credit card processor(s).
Stopping your PayPal, Venmo, CashApp, and Zelle from funding.
Holding your payroll from running.
Harassing your customers or vendors with nasty letters.
Freezing funds (and redirecting the funds to the MCA company) coming from your vendors or customers.
These actions can be brutal and destroy your business.
Is a UCC Action Legal?
Yes, a UCC lien is totally legal and you likely gave permission for use and enforcement in your agreement.
Is a UCC Action a lawsuit?
No, UCC liens and actions can and are filed without any legal action and usually are independent of any lawsuit.
What is important however is that usually the MCA company will not be able to collect on liens without a court order. For instance, if an MCA company freezes a person's bank account or their business bank account, while the MCA company does not have to release the funds, in order for them to recover the funds they do have to get a judgement via the court system.
What is an MCA Lawsuit?
An MCA lawsuit us simply a legal action filed in the state the company is registered in which seeks to recover funds and damages from a default on a merchant cash advance.
In most cases, business owners do not answer the lawsuits which empower cash advance companies to wreak havoc on the business owners collecting through actions like domestication.
In states where laws are favorable to MCA companies, lawsuits against businesses can have severe consequences for their survival. Many MCA agreements require a personal guarantee, which means that the MCA company can sue both the business and its owner.
In most states like New York, you need an attorney from the state the lawsuit is filed in to answer the lawsuit
When facing a lawsuit, it is essential for individuals to engage a lawyer who is licensed to practice law in the state where the legal action is taking place. For instance, if the lawsuit is initiated in New York, it is imperative to hire an attorney who is admitted to the New York State bar, rather than one from Texas.
Where most lawsuits are filed, MCA companies are slick in the way that they want you to personally guarantee the future sales you may have. Because they have sued your business, filing an answer by yourself if not allowed in NY courts. "Pursuant to CPLR §321(a) and applicable case law, a limited liability company is required to appear by counsel." So, you need an attorney to answer your lawsuit.
Can I use my attorney in my home state for the MCA lawsuit?
You may use an attorney if your lawsuit is filed in your home state.
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.
Handling Lawsuits and Liens: It is what we do.
When you or your business face UCC action or a lawsuit, you need an experienced team to deal with what is going on.
Our team gets asked two questions regularly:
1 - Can you get the job done?
Our clients can trust us to successfully complete the task at hand. With our extensive experience and exceptional legal team, we are prepared to handle lawsuits, brokers, illegal activities, UCC liens, and any challenges presented by MCA companies and their collections agents.
2 - What is the cost?
The cost of our services is determined by the extent of legal assistance required for your case. Generally, we are 15%-20% cheaper than fraudulent settlement firms, striving to offer savings that surpass what you would spend without engaging our services. Our goal is to provide cost-effective solutions for individuals, businesses, and beyond.
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 advise. 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.
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