Served by The Business Backer: 8 Documents to Pull Before You Respond

If The Business Backer just served you, you’re probably feeling pretty stressed out right about now. But don’t panic. Responding to legal notices for collections is never a fun situation to deal with, but you’re always better off responding instead of sticking your head in the sand. Avoiding the situation won’t make it magically disappear. Start by pulling these: the suit papers, the agreement, your personal guarantee, their underwriting emails and texts, their disclosures, your bank statements, any reconciliation requests, their UCC filings. In Ohio state court, you have 28 days from service of summons, and that deadline is short.

1. The papers as served

When was it served, and how? If they put it in the mail, or handed to you personally, write down the date and time. You might think you’ll never forget, but you’d be surprised. How long do you have to file an answer? If it’s Ohio state court, you have 28 days from when you were served to file an answer. If it’s federal court, you have 21. Miss the deadline and you can be in a world of hurt, because if you’re not careful, that could mean the plaintiff gets everything they asked for without you getting to put in your side of the story. Undoing a default judgment is hard. In federal court you have one year after entry to apply for the default judgment to be set aside, or at least that’s the outer limit.

2. The agreement and every addendum

Yes, you signed it, but you probably don’t remember what the terms were or even if you signed all the pages. Pull the whole contract file. These should include each and every addendum, with signature dates for each. Pull out some terms like reconciliation, ACH withdrawal, and default triggers. What are the payments? Is it a flat amount they will pull directly from your bank account, or does it change based on something like your business volume? The method of payment can play into what a court considers when deciding if a transaction is a loan, or something else. It could also look to how the payments worked in practice.

Also, take a close look at the fine print around where you signed. What if there is a Cognovit Clause? The easiest way to tell is to check the signature lines: Ohio requires that in order for a warrant of attorney to be valid, the warning about it must be conspicuous and directly above or below them.

3. Your personal guarantee

Did you, the owner, personally guarantee the loan? If so, take a look at any documents that backed up the guarantee. Read over the terms. If you’re both the business owner and the guarantor, you will probably be listed as both in the suit. As the guarantor, you may have separate defenses and separate exposure.

4. The emails and texts from underwriting

Take a minute and back up your text messages and your email. Do you remember exactly how the salesperson talked up the deal? Was anything promised that was not in the agreement? If you negotiated with an underwriter prior to signing the agreement, that’s a major gold mine. It’s common for those conversations to be about more than just how long you want the term to be and what the rate will be: they’ll also often talk about how the loan will be structured and what defaults will trigger what actions. This means that it’s vital to go over all those emails, chat logs, and texts, and look for promises and other information that are not in the written contract.

5. Whatever they disclosed

If you were lucky enough to get disclosures during underwriting, get them out. It is absolutely possible that you were never given a document that laid out exactly what the effective rate or APR is, or had things explained to you in ways that were misleading or just plain wrong. Do you remember what you were told? Go back through your conversations and written notes to see if the disclosures match up. Your attorney can help you figure out if and how this impacts your defense.

6. Bank statements, start to finish

If you had payments automatically pulled from your account, now’s the time to pull the statements for the whole life of the deal plus the payoff statement. Start at the beginning and see how the payments worked. Did the withdrawals stay the same, even when you had little sales? If you had a variable amount taken out each time based on how your business was doing, were there any dips or spikes in payment? Was this in line with what your agreement says the payments should be based on? How about on the payoff? Does the balance make sense to you?

7. Your reconciliation requests

Any time during the course of the deal that your sales dropped, did you ask to have the payments lowered? If so, get the original request and whatever response you got. Maybe you even followed through and sent them the request, but they ignored it. Your attorney will need to know how that works, and what the flow of communication was like.

8. UCC filings and collection notices

Pull up a UCC search for your business’s full and accurate legal name. Check for financing statements. Yes, this impacts your future, because most financing statements remain in place for five years after they’re filed, and that can block refinancing. Does the collateral description match what your agreement says it’s supposed to? Was the financing statement amended at any point? If there was a sale or refinance, was a termination statement filed in time? A filing that should have been amended or terminated can cause some real issues with refinancing or selling your business.

Pull any and all collection letters from the funder or its lawyers. If you’ve ever gotten bank notices that your account is frozen, get those as well.

Talk to a Business Debt Defense Lawyer

Finding out the weaknesses in their case may take some effort, but it’s worth it if it means putting you in the best position to settle or win. Get this stuff together and get a handle on things, and then look at what options you may have. Talk to a business debt defense lawyer about the details of your case and defenses you may have.

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.