Protecting Businesses From Exploitative Lending Practices

Your small business growth relies on available cash. You understand this. Lenders understand this, and some lenders aim to take advantage of this. Lending practices with unfair repayment terms, disproportional interest rates, and high advances can not only ruin your business but also your personal financials. Unfamiliar legal jargon and loopholes make up the latest method in predatory lending. Since 2014, there have been over 25,000 cases of cash advance companies seizing assets from unaware borrowers using confessions of judgment.

A signed confession of judgment forfeits the signee’s rights to defend themselves in court. This is dangerous in numerous ways. Cash advance companies requiring signed confessions of judgment face accusations of forgery and fabrication in proposing judgments. Even with evidence of these accusations, borrowers cannot prevent lenders from seizing their assets. The signed confession of judgment strips borrowers of all rights and power in the loan agreement. Financiers do not require proof of default and no judge is involved.

The benefits of a lender wanting a signed confession of judgment is obvious. The document is kept on hand and ready to be filed at the first sign of trouble. Rather than waiting months and carrying the cost to obtain a writ of execution, the path to collection is immediate and inexpensive since the judgment is already signed. The possibility of overturning the decision is pretty much impossible because the process operates all within the law. It mitigates all risk of lending since the financier can recover their advance—plus fees and interest—without warning, preventing the borrower from accessing their bank accounts.

A financing application requiring a signed confession of judgment should raise a red flag for any business owner. There is no good reason to sign a confession of judgment.  No matter how desperately your business needs funding, there are better options than 400% interest rates, daily repayments, and forfeiting the right to protest asset seizure should you hit a bump in the road.

What can you do to protect yourself and your business from signing predatory lending agreements? First, it’s a good idea to have a lawyer or accountant look over the paperwork. Some financial or legal terms may be unfamiliar to you, so leave it to the professionals to double-check you won’t be putting your neck on the line for nothing. Next, consider what you need and what you have. Analyze your assets and be smart about what you leverage. Finally, take the time to research and consider all possible funding options for your business. Working capital funding strategies come in all shapes and sizes.

Have you considered selling your receivables to a factoring company? Accounts receivable funding is a debt-free, low-risk financing solution to small businesses.

 

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