At LendingBuilder, we strive to keep our readers informed. Business financing is a tool for good when used responsibly. When lenders and borrowers are honest and professional, businesses thrive. But when lenders are dishonest, the damage is serious. Fortunately, Bloomberg put together their great Bloomberg merchant cash advance series. This series shed light on the darkest corners of the modern MCA marketplace.
Here, we will give you a brief outline of the Bloomberg merchant cash advance series. We will also connect you to the full articles should you want to read more. If you’re shopping for MCAs, we’d recommend you read it. Due diligence is now critical in dealing with MCA providers.
“Sign Here to Lose Everything” Part 1: I Hereby Confess Judgement
One of the sneakiest tricks inserted into many MCA agreements is the “confession of judgment”. This is a legally binding statement that borrowers must sign for some MCAs. What they mean is that should the MCA provider take them to court, the borrower will be presumed guilty. If you sign a confession of judgement, you have officially waived your right to defend yourself.
When an MCA provider has a confession of judgment they can hold against you, their power is substantial. They can, with or without evidence, accuse you of not paying them back as per your agreement. Regardless of the truth in their accusations, they can seize your assets. Of course, with your confession of judgment in their hands, you cannot so much as defend yourself in court. Even if you’ve made repayments on time, every time.
With this kind of power, it’ll likely come as no surprise that some MCA providers have abused confessions of judgment. These confessions have a long history in English Common Law, but they are now being abused by unscrupulous lenders.
So, lesson one is: watch out for confessions of judgment. And of course, if you see one in an MCA agreement, close the web page or toss the paper.
Read the full report here.
Bloomberg Merchant Cash Advance Series Part 2: The $1.7 Million Man
The MCA industry has, unfortunately, become partially hijacked. In the worst of cases, the industry resembles the old loan sharking operations of the mobs. In other cases, the industry has provided lucrative bonuses to government officials.
Meet Vadim Barbarovich, the $1.7 million man. Vadim has emptied business bank accounts across the US and kept a cut for himself. And he’s done it all with the help of a badge and a stack of paperwork.
Vadim is a city marshal, and he’s among 35 others appointed by NYC mayors who recover debts and collect a fee for doing so. The typical duties of an NYC marshal include towing cars and dealing with squatting tenants. For some, an NYC marshalship also means debt collection. Effectively, marshals are legally collecting debts for lenders. There have been reports of marshals like Vadim pushing the limits of their authority. While Vadim’s jurisdiction ends at NYC limits, he has been able to collect debts from businesses as far adrift as Florida and Illinois.
So, if you’re considering an MCA, only go with reputable lenders. The lesson of this second chapter is one of simple caution. If you take the wrong advance, you could see a government official legally seizing all your funds on behalf of your lender.
Read the full report here.
Part 3: Rubber-Stamp Justice
It’s not just individual officers of the law collecting debts on behalf of predatory lenders. New York’s courts have been put to use shutting down businesses across the US.
Confessions of judgment are serious documents. But nowhere have they been taken more seriously than in New York State. After World War II, many states started banning the use of confessions of judgment over the potential for abuse and the damage they can do to the small business economy. The Federal Trade Commission also banned them for personal loans in 1985. Some states have placed restrictions on how they can be applied for business purposes. But in New York, they are still applied liberally. Ontario, Orange, and Erie counties represent over 60% of all enforcement for confessions of judgment in favor of MCA companies.
Read the full report here.
Bloomberg Merchant Cash Advance Series Part 4: The Business Loan Kingpin
It’s not too difficult to get into the MCA industry if you have the money. One former drug smuggler managed to build a thriving predatory lending company while out on bail. Everything the company does is completely legal.
Jonathan Braun managed to build an MCA company during the 7 years he was awaiting trial. He advances money to truckers and contractors across the US. His advances regularly exceed a 400% APR. His competition has remarked on how he allegedly brags about how much money he makes every month.
Dozens of borrowers have alleged that Jonathan cheated them during interviews. But most of those borrowers opted to not be named out of fear of retribution. Jonathan was a drug-smuggling “prodigy” in his thirties. Now, he has put several businesses out of business with the help of confessions of judgment. His company, Richmond Capital, has been awarded 252 judgments by confession against small business borrowers across the US.
Read the full report here.
Part 5: You Might Get A Visit From Gino
When you fail to make debt payments, some lenders will take things a bit far. For some MCA providers, the steps they’ll take to get their payments border on intimidation.
Gino, a bodybuilder, has traveled the US for six years for Philadelphia-based Par Funding. Gino once walked into a camera rental business in California, insisting on meeting the owner. According to a court complaint filed against him, Gino mentioned another borrower late on payments who was injured in a car crash. He allegedly went on to explain how “these are the kind of things which strongly affect wives and children.”
While this may sound unbelievable, it’s not the only allegation against Gino. And Gino isn’t the only person working in the MCA industry who’s been accused of such tactics.
There is only one lesson to take in: due diligence is critical. There are always institutions and laws to protect you from abuse. But there are also always legal corners that unscrupulous figures will take advantage of. Remember to look into any lender before taking a loan, and stick to the most reputable lenders.
Read the full report here.
