Business debt is an issue that we encounter frequently, and this type of debt is spread over a wide spectrum of lenders. Unlike consumer debt, there are far less protections for small businesses and individuals that obtain business loans and financing. In litigation, we commonly hear that a business either should have known or done their due diligence when entering into a contract or incurring business debt. Business debt can range from regular unsecured or secured loans taken from banks such as PNC, Citizens Bank, Citibank and the like. Many small and large business take these loans out and securitize them against business assets or property. If a default occurs, the bank will often move to repossess the secured property or generally sue the business if it is an unsecured debt.
Business and corporate credit cards that are given by banks like American Express and Chase are also extremely common. Business credit cards are the more frequent type of credit cards that we see. Corporate cards are rare because a business must show a high annual revenue to obtain one. More importantly, there is no personal guarantor for a corporate card unlike business cards in which there must be at least one personal guarantor. For banks such as American Express, a personal guarantor is important because they can pursue the individual if the business fails or becomes defunct. Corporate cards however do not have a guarantor so the creditors can only pursue the business itself. Both business loans and credit card debt can be negotiated and settled saving anywhere from 30% to 80% off of the balance. Both must also be defended against in litigation to prevent a judgment by the creditor which would allow them to levy property and potentially seize assets.
The government also gives out business loans such as the Small Business Administration or SBA loans which consist of both Emergency Injury Disaster Loans, EIDL and of course the recently popular Paycheck Protection Program, PPP loans. These loans are administered and monitored by the federal government. Thousands of both types were taken by businesses because of Covid and now the EIDL loans have come due as well as PPP loans that were not forgiven. Surprisingly, the Federal government is willing to negotiate settlements on these loans as well. Negotiating with the government is never easy as they have very strict guidelines and parameters that they have to follow. However, a substantial reduction can still be negotiated if the business can prove substantial financial hardship. Tax returns and bank statements are usually necessary to get a deal done. A lump sum payment is preferred and makes a big difference when negotiating a settlement on a PPP or EIDL loan. However, payment plans are still possible to obtain.
Finally, the most notorious of the bunch are Merchant Cash Advances which we have seen more of than any other type of business debt over the last few years. These are technically not loans but instead a purchase of future receivables of the business. These so-called advances are fairly easy to obtain but carry extremely high interest rates and have all sorts of additional fees. MCA payments are often drawn daily or weekly from the business account, sometimes for thousands of dollars a day or week making it very difficult for a struggling business to catch up if they are behind or business is down. Merchant Cash Advances default at a high rate from our experience and the creditors become extremely aggressive as soon as a default or near default occurs. The MCA collection people will immediately contact the business and harass them over the phone, email and text multiple times daily often threatening and disparaging the business and individual. The collectors will often reach out to family members, vendors and even clients of the business to attempt to pressure and scare the business into resuming payments to the MCA.
The next step is usually obtaining a collection law firm to continue collection efforts. Merchant Cash advance collection law firms such as Berkovitch & Bouskila, Lieberman & Klestzick, David Fogel, Steven Zakharayev, and Jeffrey Zachter are common in the collection and litigation landscape for Merchant Cash Advances. Lawsuits are filed fairly quickly in these matters after collection and motions for default judgments are sometimes filed as fast as 31 days from the date of service from our experience in most of these situations. This is an extremely aggressive tactic that gives the business little to no time to obtain and review the lawsuit and even less time to retain an attorney. Service of process on the business is almost always exclusively done via mail as opposed to a process server. This is something that the MCA’s usually have in their contract. Serving via mail is not very efficient and results in far more default judgments than if served by a process server. Merchant Cash lenders also frequently file UCC-3 liens before initiating litigation attempting to essentially sidestep litigation and place liens on certain accounts. We have seen UCC liens sent to companies such as Amazon, Airbnb, Cashapp, Intuit, PayPal, Square, Stripe, Turo, Venmo and others. These companies then freeze the account of the small business which often has money in it because of the UCC lien or ask that one of these companies send the money to the MCA instead.
Merchant Cash Advances must be defended against more aggressively than the rest of the business debts discussed because of the risk and liability involved. We often find that MCA lenders are interested in coming to a negotiated settlement just as the rest of the business debt creditors are. The only difference is that it is more difficult, and more leverage is necessary to try to obtain a fair deal with them. Therefore protecting assets and property against UCC liens and defending against lawsuits and even counterclaiming against the Cash Advance companies is important to obtain such leverage.
It is important to speak with an experienced debt attorney when deciding to resolve any of the complex business debts above.