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Proposed Ban on Confessions of Judgment

We have already talked at length about protecting your small business from predatory lending practices. We have even vlogged about confessions of judgment requirements in predatory lending agreements. Now, there is movement on the legislative front in New York for preventing COJ requirements from merchant cash advance company lending agreements.

The Rise in Predatory Lending

Small business owners should be paying attention to the discussions centering around the use of confessions of judgment by MCA lenders. A confession of judgment forfeits a company’s right to dispute claims brought about them in court. This is a huge waiver that has been included in over 25,000 cash advance companies’ lending agreements since 2014, and nearly 6,000 more just this year. The legal jargon and loopholes deployed against unsuspecting business owners in these lending agreements finally prompted government action.

Ending Confessions of Judgment

New York has two house bills and a senate counterpart aiming to reduce and restrict the use of confessions of judgment in small business financing agreements. The bills, which are awaiting gubernatorial approval at the time of writing, would limit the filings of confessions of judgments and outright ban the requirement of a signed confession of judgment in the financing contract agreement.

Hidden Fees, Legal Jargon, Absurd Interest Rates

It should raise a red flag to business owners when financial institutions require a signed confession of judgment upon application, charge up to 400% interest on the loan, or require unjust daily repayments. Predatory lending practices, despite the most recent push for regulation on confessions of judgment, are on the rise. Following the Great Recession, alternative lenders gained space in the business funding sphere. This is great news for small business owners who suddenly found it much harder to secure a loan from a bank, but some lenders turned to gouging their clients for any profit they make and creating a cycle of debt for entrepreneurs.

Predatory Small Business Funding

Confessions of judgment are just one example of unfair lending practices, stacking the cards against entrepreneurs. With the many business funding options currently available to small business owners, it can be overwhelming to compare options. Many business owners do not have the time for applying and negotiating agreements with online lenders, traditional lenders, and alternative lenders. Beyond that, scouring legal contracts for confusing language or hidden costs will be outside an entrepreneur’s skillset. Overall, it can be hard to trust business financing companies when a few bad apples spoil the bunch.

Trustworthy Business Funding

How can you be sure your small business finance agreement is trustworthy and in your best interest? Having a lawyer read over contracts before you sign is always a good idea. Additionally, look for lenders in organizations and associations that hold their members to fair lending practices. For example, Eagle Business Credit is a member of the International Factoring Association or IFA. This organization requires members to abide by the IFA’s Code of Ethics. If something seems fishy in your lending agreement, follow your gut and get more information before signing anything.

Invoice Financing Partners

When considering accounts receivable financing or invoice factoring as a business funding solution, be sure to ask your factoring company about additional fees in their factoring service. If you are quoted a factoring fee that is dramatically lower than most competitor rates, this should stand out as a sign that you need to do more homework on the company. The factoring company may be hiding additional costs in their factoring agreement to compensate for their ‘low’ prices. The same is true if they are offering you an advance rate that is much higher than most competitor rates–they may have other ‘blocks’ or restrictions on funding that they are not telling you about upfront that would mean you could end up getting a lower ‘true’ advance rate. Check for online reviews of the factor and don’t be afraid to ask them for a client referral–an existing client of theirs that you can talk to about their service.

Small Business Financing Transparency

At Eagle Business Credit, we subscribe to a client-focused mentality and offer competitive rates, low fees, and total transparency. We grow with our clients’ success, so it makes perfect sense to cater to their financing needs. Our team members are available to discuss any client questions or needs in plain language. Our financing programs are fast, flexible, and geared toward your success. Invoice Financing is debt-free, does not require a signed confession of judgment, and grows with your financing needs. Whether you are trapped in a debt-cycle from MCA agreements or short-term loans with high interest rates or whether you’ve maxed your line of credit, we can work with your funding needs to get your business on track and keep your business thriving.