6 Mistakes Business Owners Make When Advantage Capital Funding Sues

If you’ve defaulted on a merchant cash advance, Advantage Capital Funding could sue for the balance due. You may see a UCC lien on your receivables, and you might get calls saying your customers or processor have been told to freeze receivables. Most complaints will say you owe the full balance plus fees, and may name an owner as guarantor. These are the funder’s side of the story, not a ruling. Many small businesses falter when they fail to meet deadlines, deal only with collectors, assume the claim is true, neglect to check the math, overlook their defenses, and move money or sign a new advance.

1. Missing the deadline

If you got served in person, you have 20 days to respond. If not, it could be 30. Miss the deadline, and they can get a default judgment.

To respond in most New York courts, a corporation must defend itself through a lawyer. Once entered, the judgment grows 9% per year, and a restraining notice can freeze bank accounts for up to a year. A docketed judgment is recorded with the courthouse and acts like a lien on all your real property in that county for up to 10 years.

Default judgments can be undone, but time limits and standards are strict. If you have an excusable reason, you can move within one year of when you get notice. There is no one-year limit for lack of jurisdiction or fraud.

2. Handling it with the collector

If you call your collector, you might feel like there’s a chance. What the collector said could change nothing about what the court finds. You still need a legal defense, not just a phone call to a debt collector. Don’t let the phone calls distract you from what matters the most. Your priority is to answer the court. The number of funder’s phone calls won’t change the court deadline. Save every email you get.

3. Assuming the claim is true

In a court case about a merchant advance, the lender must usually prove four things: that there is a valid agreement, that it paid the “purchase price” and held up its end of the bargain, that you breached the agreement, and that the lender has suffered a loss.

A missed or returned payment may not be enough to support a default claim on its own. Many contracts include a reconciliation clause with special rules on financial matters. What matters is how reconciliation worked in practice, and whether you requested it properly with records.

Falling sales don’t automatically stop debits. Many agreements say that ordinary sales slowdowns, or even a complete closure, don’t mean you have defaulted. The wording matters.

4. Not checking the math

Never assume you owe exactly what they say you owe. Get a copy of the agreement and your guarantee, then check your bank statements. Go line by line. Find every debit and make sure you get an accurate credit. Check your correspondence with the company. Did you ask for a reconciliation? Attorney’s fees are often a fixed percentage. Default and legal fees may be penalties.

5. Overlooking your defenses

One way to defend an action based on an advance is to prove it’s really a loan. Courts weigh whether there’s a reconciliation clause, a fixed term, and whether the funder gets repaid if the merchant goes bankrupt.

If a loan is above New York’s 25% criminal usury limit, it’s void. However, advances generally aren’t loans, and a high rate alone isn’t enough to void an advance.

A defense isn’t enough; you have to prove it. Did the contract say the funder would reconcile balances? Prove they never did.

Many contracts bind you to New York law and courts even if you do business elsewhere. Whether they hold depends on the wording and the facts. A merchant advance funder can sue even if there’s no confession of judgment. If there is, though, it can’t be entered against a business that never lived in New York. A confession of judgment can be used in New York only if it was signed within three years of the filing. It must have been filed in the county where the signer lived when it was signed or lives when it is filed. Also double check who served you.

6. Moving money or re-borrowing

Get legal help before you redirect your receivables, change the bank account that pays the daily debits, transfer assets or sell your company. Doing any of these things may cause a default and create more obligations. Taking a new advance to pay the old one may create a new problem.

If you signed a personal guarantee, your personal property and assets could be on the line. Some personal guarantees only cover your promise not to move your receivables account, not to pay the money itself. If the guarantee covers only specific promises, and the business slowed for ordinary reasons, there might be a defense. And if a loan is void, the guarantee may be void as well. If there’s a judgment against you personally, they can ask the court to take up to 10% of your wages.

Settling may be a good idea, or a terrible one. It depends on the evidence, the numbers, what defenses you have, and the terms. What you sign and get in the end is the difference between a smart settlement and a bad deal.

A free contract review costs nothing and takes a day or two. Call (888) 837-7053, or send the agreements to Delancey Street for a straight read on your options.