When a small business owner defaults on a loan or advance, usually the first thing alternative lenders utilize are UCC liens. UCC actions from liens hit small business owners fast and hard. In many cases some of the worst alternative lenders will cause massive amounts of harm to occur to small businesses and their owners. This article describes some of the actions that small business owners should be aware of, especially if they have issues with their alternative loan/advance.
By Thomas Tramaglini, Chief Operations Officer
Partner, The Center for MCA Research
How do alternative lenders view those who have defaulted on their alternative loans or cash advances?
A merchant cash advance makes up more than 90% of alternative lending transactions. That is, alternative lenders purchase your future receivables (at a massive discount) which is given to the alternative lender either daily or weekly.
When a small business defaults, which the majority do, the alternative lender thinks the small business owner is a thief. Therefore the alternative lender will hold nothing back in their pursuit of their money.
UCC liens and actions are one of the tools that alternative lenders use to go after the people they believe are thieves.
What is a UCC lien and why are they used?
A Uniform Commercial Code lien, known as a UCC lien or UCC-1 financing statement, is a document that lenders use to establish their legal claim to assets a borrower uses to secure a loan. The lien is filed with your state's Secretary of State and serves as a notice which allows a lender to seize the borrower's collateral if there is a default.
UCC filings can relate to a specific piece of collateral, or lenders might file a blanket lien, which includes all of a borrower's assets. Filing a UCC lien is a common practice among lenders when providing funds to small businesses.
What are UCC actions?
A UCC action is when an alternative lender chooses to enforce the actions available to begin to recover the funds that you owe them. By using the lien filed with the Secretary of State in the state where the business is organized, the debt collector can collect on the debt by enacting actions which most of the time the small business owner never knows about.
Is a UCC Action Permissible by Law?
Yes, a UCC lien is completely lawful, and you probably consented to its utilization and enforcement in your agreement. In many cases, the small business owner never reads their agreement and does not fully grasp what they have signed over to the alternative lender. However, it is by far fully legal for what the alternative lender does by using certain UCC actions.
UCC liens/actions give the alternative lender the ultimate amount of control.
Why are UCC actions so powerful? Because of the authority they have to do things like freeze bank accounts, withhold payroll from being delivered, or stopping a business from getting paid, it means that the UCC action gives the alternative lender all of the power to bring the small business owner to its knees.
In most cases, the good alternative lenders want their money paid back as fast as possible but they will do what they can to work with the small business owner to pay back their debt. The bad alternative lenders or their collections thugs will not work with the small business owner.
These organizations are known throughout the industry and will stop at nothing to ensure that small business owners are subjected to pain when having their debt collected. We have seen assets taken, businesses run into the ground, assets taken, homes taken, and more.
The bottom line is that once the alternative lender has the high ground against the small business owner it is pretty much game over. And depending on who the alternative lender or their collections firm are will depends if you will make it.
Some industries are more susceptible to UCC actions than others.
Some industries are more exposed to UCC actions than others. As previously stated, some alternative loan contracts have small business owners disclose things like their payers names, their bank accounts, and more.
The main point is that when the alternative lender has access to who pays the small business, as well as where they have their assets, its only a matter of time until the small business owner is being check mated by the alternative lender.
Top actions that predatory lenders use to go after funds.
1 - Freeze your bank accounts.
Without a doubt one the favorite ways that the collections efforts of alternative lenders bring small business owners to their knees is by freezing both your personal and business bank accounts. This information is easy to find (unless you have changed your bank). Most of the time during the funding process you have given your bank statements or access to your bank account(s). Bank accounts are easy to get to.
However, one of the negatives of freezing bank accounts is that in order for the banks to take the money (in most cases) the alternative lender must get a judgement from a court and then secure a court order to seize the funds, which takes time and money.
2 - Freeze your processor (credit card/ACH)
Similar to freezing your bank accounts, alternative lenders will find your credit card or ACH processors and send them a UCC 406 letter, which forces the processor to stop funding the business owner. A goal of this is to hopefully redirect receivables (which the business owner has already sold to the alternative lender). Another goal is to stop the small business owner's ability to do business. Either way, the alternative lender has the right to do this and will do nothing short of stopping all payments until they are paid.
Restrain your vendors or clients from paying you.
When an alternative lender knows why pays you it is easy for them to inform the vendor or client that they have a lien against your business by sending a UCC 406 letter out. Once the letters go out, those who pay you are informed to hold your payments and redirect it to the alternative lender. This action is VERY successful and at a minimum the vendor or client knows that it is unlawful to pay you.
Harass your customers or clients.
One of the actions that alternative lenders will turn to is to send lien notices to customers. Once customers get wind of financial issues for the business it hurts the business owner. To the lay person one would ask why an alternative lender would do this? Simply put, they do not care. As aforementioned, once you default they treat you like a thief.
Freeze your assets.
Once you have defaulted, one of the things that alternative lenders will do is begin to freeze assets, such as retirement accounts, etc. While these things are a bit harder to get to, the majority of small business owners do not answer the subsequent lawsuits which are filed against them and once they have a judgement, its only a matter of time until the alternative lender begins domestication proceedings.
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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