A decline in approval rates by larger financial institutions to small business owners has led to a boom in the alternative lending arena with one of the top contenders being Merchant Cash Advances. Boasting quick and ease access to funds, the fine print on your Merchant Cash Advance should be thoroughly analyzed prior to signing. Today, the business debt relief lawyers at ZocLaw.com highlight important elements of a Merchant Cash Advance agreement that may have severe financial implications.
Merchant Cash Advances: Confession of Judgment
In an attempt to avoid costly litigation processes, many lenders will require borrowers to sign a Confession of Judgment which indicates that business owners are claiming full responsibility for any damages to the Merchant Cash Advance account. A Confession of Judgment essentially protects the funding company and not the borrower, particularly if there has been a default. In addition, signing a Confession of Judgment authorizes the lender to enter a judgment without filing a lawsuit against you.
Merchant Cash Advances: Personal Guarantee
A Personal Guarantee is also designed to protect Merchant Cash Advance lenders in the event of a default, enables the lender to seek relief from outstanding Merchant Cash Advance payments by pursuing the debtor personally, should the assets of the business not satisfy the debt. The personal guarantee acts as collateral against the Merchant Cash Advance.
Merchant Cash Advance: Acceleration Clause
The acceleration clause in an Merchant Cash Advance agreement is a very powerful tool that allows the full amount of the financial obligation to become available upon default, not just the defaulted amount. A signed Personal Guarantee and an Acceleration Clause will allow the lender to attach your personal property much faster.
Merchant Cash Advance: Predatory Lending
Predatory lending facilitated by the lack of both federal and state regulation has become a norm in the alternative lending arena. In addition, Merchant Cash Advances are exempt from state usury laws that would otherwise prohibit lenders from charging unreasonably high fees. Moreover, laws that prohibit lending more money than a business has the ability to repay as well as changing its billing procedures without advising merchant borrowers are not applicable to Merchant Cash Advance lenders.