Merchant Cash Advances (MCAs) are a type of business funding not considered a loan. Instead, MCA providers take a percentage of the business’s daily income as payment for the lump sum advance given. This makes MCAs attractive for small businesses that do not have access to traditional lending sources.
However, this ease of funding has a few downsides, such as shorter payment terms and pre-signed judgments, also known as confession of judgment clauses (CoJ). This can especially be worrisome since the only time business owners will know something is awry is when their assets are already gone.
What is a Confession of Judgment (CoJ)?
A Confession of Judgment or pre-signed judgment is a clause in a contract wherein one party waives the right to contest the other party’s claim in court. This means that when you sign a contract with such a clause, the other party can go to court and quickly obtain a judgment on their claim against your assets without going to trial because you have signed away your right to contest them.
Remember that because MCAs are not considered loans, the (FDCPA) does not apply to their collection.
New York restrictions against CoJs
While many states allow CoJs, New York has much more stringent regulations. For one, MCA providers cannot file a CoJ against out-of-state debtors, and there are also stricter filing requirements against in-state debtors.
Other grounds for contesting
Proving fraud, misrepresentation or creditor misconduct can often give you grounds for contesting a claim against your assets. Contesting such a judgment can be complex and require a thorough understanding of the law. You may consider seeking legal counsel for better guidance on your issue.