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Predatory lenders are not worth the risk

On Behalf of | Sep 16, 2020 | Business Law And Litigation |

Owning a small business could lead to financial independence if the enterprise proves successful. Unfortunately, many small businesses in Texas may find themselves suffering from decreased revenues. As a result, these small businesses could become targets of predatory lenders. The federal government has taken note and also taken action. Lenders offering small business owners high-interest loans may find federal authorities intervening.

Government entities filed lawsuits against lenders, and these high-profile cases might lead some companies to rethink their approach to lending. Both the Securities Exchange Commission and the Federal Trade Commission filed lawsuits against lenders recently. One firm also faces a suit from New York’s attorney general. The FBI launched a raid on one lender, revealing how serious certain allegations can be.

One report suggests a lender threatened to seek out the borrower’s clients and ask them for direct payments. Tactics such as these would not be legal under U.S. law. Another report may prove shocking to those who review it. Allegedly, one lender threatened violence against a borrower due to the non-payment of debt obligations. With stories like these surfacing, it does not surprise some that the word “gangster” is used to describe some lenders.

How do small business owners find themselves involved with such lenders?

The lenders operate under the category of “merchant cash advance” companies. The lenders provide what appears to be cash lifelines to businesses needing money. Of course, the cash advances come with high amounts of interest. Small businesses that continue to borrow from the lenders may find their debt balance grows exponentially. Small business disputes might arise over disagreements over debt obligations.

Merchant cash advance lenders are not banks, though. Therefore, they do not fall under the same regulatory requirement. Still, there are rules in place regarding the operation of such enterprises. Violations of the law can lead to civil or criminal actions.