I am being sued by a Merchant Cash Advance Company: What to Expect and What to Do.

Were you sued by an alternative lender? Every day, hundreds of small business owners face lawsuits from Merchant Cash Advance (MCA) companies. However, many of these business owners are unsure of how to respond. In fact, over 90% of small business owners who are sued by MCA companies fail to respond to the lawsuits, resulting in judgments against both their businesses and themselves personally. This article outlines what occurs and provides guidance on what actions to take when a small business owner is sued by an MCA company.

By Thomas Tramaglini, Chief Operations Officer

thomas@beaconclientsolutions.com

About Thomas Tramaglini

Every day, numerous lawsuits are filed against small business owners. In our experience, we've found that many small business owners are unsure of how to handle these situations. While some are familiar with Merchant Cash Advances (MCAs), ignoring an MCA lawsuit can negatively impact their businesses and personal finances.

That's why we've compiled a list of important things every small business owner should know during this process.

Please do not panic if you get sued. It will be okay.

Being sued doesn't mean you'll be arrested or jailed for defaulting. Often, brokers or lenders threaten clients with criminal charges if they don't pay immediately. Remember, these are civil lawsuits, not criminal ones. A lot would need to happen before it becomes a criminal matter.

In some instances, brokers or lenders have threatened family members, clients, or the business owner with violence. If this occurs, contact the police right away.

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

When an MCA company sues you, it's important to know that no one on their side cares. The MCA company, their attorney, and any collection agency involved simply want you to pay. They are focused on getting their money back by any legal means necessary.

We've witnessed the good, the bad, and the ugly of the MCA collections industry. Many MCA companies, driven by investors, employ tactics like UCC freezes and judgments to recover debts. They are relentless in their pursuit, regardless of who the client is.

If you have not been harassed, you will be.

Brokers and MCA companies are determined to get their money, often resorting to any means necessary. While not all are like this, many can be aggressive. Be prepared for frequent harassment at all hours.

One advantage of working with us is that we can stop these harassing calls, texts, and emails quickly.

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 often hear, "I didn't get served." Many small business owners waive their right to be served when signing MCA agreements. It's important to check each agreement for a clause about how you'll be notified of a lawsuit, often through regular mail, certified mail, or email. Don't ignore this, as failing to respond can lead to a judgment.

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

Avoid judgments at all costs. MCA companies file lawsuits in states favorable to their claims, like New York. In NY, if you fail to respond to a lawsuit in time, a clerk from an attorney’s office can have the court clerk sign the judgment order without notice.

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

What does this imply?

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

In simpler terms, you DO NOT want a judgment.

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

If you're working with a debt settlement company and they claim to be handling the lawsuit, ensure they truly are. This means asking to speak to your attorney, reviewing documents, and communicating your expectations. Often, the debt settlement company isn't even aware of the lawsuit.

Protect Yourself by Understanding UCC

The Uniform Commercial Code (UCC) is a set of laws governing commercial transactions accepted by all U.S. states. UCC filings are used by lenders and Merchant Cash Advance companies to declare their rights to collateral or liens on a loan or tangible property.

Often, the MCA company has filed a UCC lien against the small business owner. If someone struggles to repay their MCA or stops paying, they can expect a UCC lien to be filed. This is something many small business owners cannot get ahead of, so if you're being sued, use our tool to check 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 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 sues a small business owner, the lawsuit is often filed to 1) satisfy the MCA company's investors or 2) bring clients to the table to repay their MCAs.

Those who choose to work directly with the MCA company can negotiate their settlement and help themselves. The issue is that those involved have been sued, placing them at a disadvantage against an MCA lender and attorney, and if something goes wrong before repayment is complete, it can be significantly more severe in the long run.

It is not recommended to settle with an MCA company or their law firm on your own without consulting or retaining an attorney first.

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.