Be smart. Get help with the lawsuit(s) from your alternative lenders.

Have you been sued by an alternative lender? Are you threatened to not get help or told the only people who can help you are the collections folks or lender?

It is not illegal to get help. In fact - it is important.

This article describes some of the things that a small business owner might encounter when they are sued and provides some avenues for getting the help one may need to defend themselves.

By Thomas Tramaglini, Chief Operations Officer

thomas@beaconclientsolutions.com About Thomas Tramaglini

Many lawsuits are initiated against small business owners each day and from our experience, we've observed that numerous small business owners are uncertain about how to manage these circumstances. Although most small business owners feel the wrath of alternative lenders and their collections teams, neglecting a lawsuit from an alternative lender can have severe consequences.

The team at Beacon Client Solutions understands that when small business owners have pending litigation against them, it is important to provide the resources so you can defend yourself. Therefore, we put together some important things for small business owners to consider.

When you get sued, or when you are threatened with legal action from an alternative lender, do not panic. Help is available.

Being sued does not imply that you will be arrested or imprisoned for failing to pay. Brokers or lenders often intimidate clients with the threat of criminal charges if payment is not made promptly. Keep in mind, these are civil cases, not criminal ones. A significant series of events would need to occur for it to escalate to a criminal issue.

In certain cases, brokers or lenders have threatened violence against family members, clients, or the business owner. If this happens, you should contact the police immediately.

Resources for helping small business owners are important. The problem is that most small business owners do not know where to go for information, as well as where they can retain an attorney to get help. Our team does exactly this.

When a small business and small business owner is sued, the alternative lender and their legal team do not want you to fight back. In fact, they will tell you not to work with anyone, as they will give you a better deal and will claim that settlement companies will rip you off. Although it is true that some settlement companies have a history of legal issues with their business model (see list here), business consultancies such as Beacon aim at 1) informing the client, 2) providing an avenue for small business owners to get the support they need to defend themselves, and 3) developing a coordinated response so our attorneys, our team, and the client can triangulate efforts to address the client's situation.

Getting assistance is not illegal.

When you are backed into a corner, you want a team with experts who can guide you through what you are dealing with. If you are in legal peril, you should be connected with an attorney who will provide outstanding legal support and provide the guidance necessary to settle your issue.

You will be told not to work with anyone - ABSOLUTELY get help. Even if you do not work with our team, consult with an attorney who can guide you in the right direction. Those who have an attorney answer their lawsuit are usually in a much better place that those who ignore the lawsuit. Once the lenders attain a judgement you are in a very precarious position.

Rule of Thumb: We and You Care about what happens to you. The MCA companies do not.

If an MCA company takes legal action against you, it's crucial to understand that their team is indifferent to your situation. The MCA company, their lawyer, and any collection agency involved are solely interested in getting you to pay. Their primary goal is to recover their money through any legal means available.

We have observed the various facets of the MCA collections industry, from the positive to the negative. Many MCA companies, motivated by investors, use strategies such as UCC freezes and judgments to reclaim debts. They are unyielding in their efforts, regardless of the client's identity.

If you haven't experienced harassment yet, you will in the future.

Brokers and MCA companies are committed to obtaining their funds, often using any means possible. Although not all are this way, many can be quite forceful. Expect persistent harassment at any time of day.

One benefit of partnering with us is that we can swiftly put an end to these harassing calls, texts, and emails.

Know Your Timeline to Answer the Lawsuit

Typically, you have 30 days to respond to an MCA lawsuit. If you're in the state where it was filed, like New York, you have 20 days. Responding to the lawsuit is crucial, regardless of the timeline.

UMM….”I didn’t get served”

We frequently hear, "I wasn't served." Many small business owners relinquish their right to be formally served when they sign MCA agreements. It's crucial to examine each agreement for a clause detailing how you will be informed of a lawsuit, typically via regular mail, certified mail, or email. Do not overlook this, as not responding can result in a judgment against you.

You Must Retain an Attorney in the Venue Where You are Being Sued.

It's common for clients to say they have an attorney, but it's essential to hire one who is licensed in the state where the lawsuit was filed. For example, if the lawsuit is in New York, you need an attorney admitted to practice there.

Our company offers experienced MCA law attorneys who can handle any situation effectively.

Answer Your Lawsuit with an Attorney

Most states require business owners to respond to lawsuits with an attorney. While there are low-cost self-answer software solutions, be cautious. Some states don't allow self-answering, and doing so often results in a judgment.

Brokers Who Funded You Want to Fund You More

Some brokers want to ensure they get paid on your MCA and may offer more funding. However, if you're struggling to repay your current debt, this only deepens your financial predicament.

Be wary of working with Debt Settlement Companies Who Have an Attorney Network

Some debt settlement companies claim to have a nationwide attorney network...

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.”

Many attorneys will file a response to a lawsuit if a business owner is sued, but this often has limited impact. When facing a summary judgment or a motion from an MCA company, or if you need a negotiator, I would not rely on network attorneys who simply handle paperwork.

Most reputable attorneys charge between $400 and $500 per hour. Our attorneys charge slightly less, but not much less. Networks like the “Sunshine Network” offer what we believe to be copy-and-paste attorneys for $100 per month.

To someone unfamiliar with legal matters, this might seem appealing. However, given the gravity of a lawsuit, I would not want one of these attorneys representing anyone. This doesn't mean there aren't competent attorneys in the network, but no attorney would seriously defend someone for $100 per month.

Avoid Judgments

Steer clear of judgments whenever possible. MCA companies tend to file lawsuits in states that favor their claims, such as New York. In New York, if you don't respond to a lawsuit promptly, an attorney's office clerk can have the court clerk sign the judgment order without notifying you.

Additionally, MCA companies sue not only the business but also the small business owner personally.

What does this mean?

With a judgment, the MCA company can begin collections by freezing and seizing assets. Moreover, some MCA lenders can easily transfer the judgment (if it's from another state) to your state (domestication) and swiftly start asset collection. This includes bank savings, assets like jewelry, non-primary real estate, and more. They can also compel you to undergo discovery proceedings by collecting bank statements, tax returns, and other documents, making it difficult to hide assets.

Simply put, you DO NOT want a judgment.

I was working with a debt settlement company, and they are handling it.

If you're collaborating with a debt settlement company and they assert they are managing the lawsuit, verify that they actually are. This involves requesting to speak with your attorney, examining documents, and clearly expressing your expectations. Frequently, the debt settlement company may not even be aware of the lawsuit.

Protect Yourself by Understanding UCC

The Uniform Commercial Code (UCC) is a collection of laws regulating commercial transactions, recognized by all U.S. states. Lenders and Merchant Cash Advance (MCA) companies use UCC filings to assert their rights to collateral or liens on loans or tangible assets.

Frequently, the MCA company has placed a UCC lien against the small business owner. If someone is having difficulty repaying their MCA or ceases payments, they can anticipate a UCC lien being filed. This is a challenge many small business owners face, so if you're being sued, use our tool to check if a UCC has been filed against you and contact us to learn what steps to take.

How can UCC liens affect your business?

• UCC liens indicate to others that you have a security interest lien.

• They prevent additional borrowing.

• They negatively impact your business credit.

• Assets pledged for recovery.

MCA Company Actions:

• Pressure your suppliers.

• Pressure your customers.

• Stop customer payments.

• Lock your assets.

• Lock your bank accounts.

• Withhold funds collected by your credit card processor.

• Withhold funds with a licensing agent.

• And many more...

Potentially inform employees, suppliers, etc.

If an MCA company sues you, they may reach out to your clients, suppliers, employees, and more. Be prepared to handle this. Such actions are often allowed through your agreement or UCC actions.

The team at Beacon can assist you with letters, templates, etc., to prevent this from happening.

Report to business credit

When a small business is sued, it typically appears on a Business Credit Report (Experian, Dun and Bradstreet, Equifax) and can also show up on your personal credit report.

This means 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 takes legal action against a small business owner, it is typically done to either 1) satisfy the interests of the MCA company's investors or 2) compel clients to settle their MCA debts.

Business owners who opt to engage directly with the MCA company can negotiate their settlement and potentially benefit themselves. The problem arises because these individuals have been sued, putting them at a disadvantage against an MCA lender and attorney. If any issues occur before the debt is fully repaid, the consequences can be much more severe in the long term.

It is not advisable to negotiate a settlement with an MCA company or their law firm on your own without first consulting or hiring an attorney.

Be Wary of Scams If You Get Sued.

When you are sued, be wary of scams. Debt settlement companies may contact you, claiming you will save 80% on repayment or that they will punish the MCA companies. While we have seen savings of up to 80%, we never use this as a tactic to attract clients to our corporate portfolio. In fact, we find that being honest, caring, and straightforward with clients goes a long way.

We recently wrote an article outlining some of the schemes used by debt settlement companies to 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 among 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.