As the business cash advance industry grows and becomes more “mainstream,” we’ve seen more and more shady companies trying to trick business owners with promises of debt settlement. Over the summer, some of the most well known of these companies’ were exposed in a very NSFW story that revealed how disreputable and unprofessional these debt relief companies can be.
The news got a lot worse for phony “debt relief” companies this week, as two of the largest cash advance companies in the unsecured lending industry, Yellowstone Capital and Everest Business Funding, jointly sued several debt settlement companies, as well as several cash advance brokers, for allegedly conspiring to sell business owners cash advances and then referring them to debt settlement companies that induced merchants to default.
While the consequences of these scandals are not fully known yet, the details of these issues are consistent with the way businesses that claim they can settle cash advance debts operate. In fact, they aren’t much different than debt settlement operations that claim they can settle personal debts, or even the infamous “loan modifications” that were offered during the financial crisis to help homeowner’s negotiate their underwater mortgages.
First, they attract business owners with high interest advances with promises that they won’t really need to fulfill repayment. They will advise merchants to stop paying their cash advances, and to start sending payments to a debt relief company, that they will supposedly negotiate a settlement amount with the cash advance lender.
But cash advance companies simply don’t work that way. The overwhelming majority of unsecured lenders do not allow for these type of settlements, and in most cases, the money sent to debt settlement companies is not nearly enough to repay these debts, even if they were used for that purpose. Merchants will also likely find out that it may be years before they will ever qualify again for any type of financing for their business because of dealing with these debt relief scams.
Now, many lenders are fighting back as extremely aggressive debt settlement firms threaten to trick their clients into insolvency. And here at Main Street Finance Group, we always advise our clients not to deal with these predatory finance companies that lend with one hand and defraud with the other. While unsecured online lending has gotten bigger and bigger, good advise is still very hard to come by. That’s why its so important for small business owners to vet and research people who approach them, offering them deals that sound too good to be true. Your businesses’ future is too important.