Response to Lenders Attacking Small Companies with High-Interest Cash Advance Loans

21st October 2021

Federal and state institutions are hitting on lenders that approach small businesses with high-cost loans and abusive collection strategies and cause inconveniences in a poorly regulated industry. Par Funding, a financial company in Philadelphia was taken under control by the FBI and eventually sued by the Securities and Exchange Commission. The major complaint was associated with physical violence while compelling repayments.

What’s Wrong with Lenders?

Being known as merchant cash advance companies, the lenders like Instant Сash Advance provide money to small businesses based on their actual revenues. The merchants usually provide access to their bank accounts for daily and weekly repayments that grow into a bigger amount in a matter of time.

More than 10 merchants in six states stated that even after the reduction of revenues during the pandemic, they kept extracting money and sometimes blocked their assets. Jay Hoehn, the founder of a personal training studio in La Jolla, borrowed $9,000 from Par Funding. No bank would approve such a big loan for him. Then, he was obliged to repay Par around $16,000 overtime. After the lockdown, the revenues of his company decreased drastically. Eventually, he was unable to cover his debt. Par Funding started threatening their clients per email demanding they make their payment to Christmas loans for bad credit 2021. At some point, a lending company had to file a confession of judgment against Hoehn. This legal action literally froze a merchant’s bank account unless the business comes back into a normal operational state.

Lending companies are not banks, so they place merchant quick cash loans online under light regulations. Efficient interest rates on the companies’ advances can be huge. For example, Par Funding has them estimated on the level of 400%. Some companies’ working strategies need to be reviewed in detail.

What Needs to Be Done?

The Federal Government announced its intention to take the situation under control. The lenders aren’t supposed to contribute to the misery and set small businesses up to fail. The victims have already started suing some of such aggressive lending companies. This kind of systemic approach will have a positive impact on the overall situation.

Some merchants told NBC News they had to sell their businesses to get out from the debt. They had to do something under their obligations to merchant cash advance companies. Jim Cook, a founder of Antelope Valley Community Clinic, borrowed around $1.2 million from several lenders. His business fell behind on payroll taxes, so borrowing money was the only reasonable solution to the problem. Eventually, Cook stated that the lender’s automatic payouts were taking away more of the clinic’s revenue than it could afford. At some point, the clinic’s administration had to stop the payments. As a result, the lenders started attacking his bank account and even blocking them.

Cook and the clinic’s board decided to refer to a different non-profit organization. But he said they agreed to pay back $2.6 million to get rid of the $1.2 million debt in merchant cash advances they’d borrowed.

Should lending services like be viewed as a reliable solution to financial problems? There is no right answer to this question. Every private and corporate client should decide this nuance for himself. But before borrowing money from lending companies, it’s better to make sure that your financial capabilities are sufficient enough to cover the debt on time.