A couple merchant cash advance companies, Maxim Commercial Capital and Austin Business Finance LLC, have recently been involved in some legal drama. As a business owner who may rely on financing, it’s helpful to understand what these lawsuits are about.
The Allegations Against Maxim Commercial Capital
Last December, state authorities raided the offices of Northwest Capital, a merchant cash advance company in Ohio. They were investigating allegations of fraud and money laundering related to Northwest’s business practices.Now, a similar investigation has started looking into Maxim Commercial Capital. Investigators searched Maxim’s offices earlier this month. While details are still emerging, it seems the allegations revolve around deceptive sales tactics and illegal high interest rates.According to business owners who worked with Maxim, the company wasn’t upfront about the true cost of their financing offers. And the effective annual interest rates charged were over 200% in some cases – far higher than Ohio’s state limits.If Maxim is found guilty of these predatory lending practices, they could face serious penalties. Their lending license may be revoked. The company and its executives could also face criminal charges for fraud and racketeering.For small business owners who rely on merchant cash advances, this investigation raises troubling questions. How widespread are these sketchy practices in the industry? As a borrower, how can you avoid getting ripped off?
-Lawsuits Against Austin Business Finance LLC
Meanwhile, a merchant cash advance provider in Texas called Austin Business Finance LLC has been hit with multiple lawsuits as well. But the allegations in these cases are different.Here, the plaintiffs are companies who funded loans brokered by Austin Business Finance. They claim Austin misrepresented details about the merchants receiving those loans.For example, one lawsuit alleges Austin exaggerated a merchant’s annual revenue to secure a larger loan amount from the funder. Other cases claim Austin withheld negative information about the merchants’ finances.Essentially, these funders argue Austin misled them to convince them to finance risky loans. And when those merchants defaulted, the funders were left holding the bag.So in Maxim’s case, the allegations focus on abuse of business owners. But with Austin Business Finance, it’s about alleged fraud against lenders. Both types of cases reveal troubling practices that hurt small businesses.
What Should Business Owners Do?
If you’re a small business owner considering a merchant cash advance, these lawsuits underscore the need for caution. Predatory lending and fraud schemes do exist, even among established industry players.When evaluating financing offers, here are some tips:
- Watch out for “no doc” offers – If a lender doesn’t ask about your finances but offers a large loan, be wary. No doc loans often have astronomically high rates.
- Read the fine print – Don’t just look at repayment amounts per day or week. Check the APR over the full loan term to understand the true costs.
- Research lenders – Search online for company names along with words like “complaints,” “lawsuits,” or “investigation.” See if anything troubling comes up.
- Consider alternatives – Even if you need funding quickly, take time to check rates from multiple lenders. Compare financing types too – loans, credit cards, etc.
If you already have a merchant cash advance and suspect unfair practices, don’t hesitate to talk to a lawyer. An attorney can review your loan agreement and help determine your rights and options. They can also assist if you get contacted by investigators or need to file a complaint.
Ongoing Investigations
Authorities have been ramping up efforts against predatory merchant cash advance companies. The Maxim and Austin Business Finance cases likely won’t be the last lawsuits we see.In fact, the New York Attorney General recently announced settlements with several MCA firms accused of fraudulent practices. And federal regulators are also taking notice. The Consumer Financial Protection Bureau is now accepting merchant cash advance complaints from small businesses.With this increased scrutiny, experts expect to see more regulatory action and lawsuits in the coming months and years. Lenders may face charges for violations ranging from deceptive marketing to outright fraud.For reputable players in the MCA industry, this shake-up presents risks but also opportunities. Companies who self-police and treat borrowers fairly can distinguish themselves from unethical competitors. They can also work with lawmakers to shape sensible rules that protect small businesses without limiting access to capital.How these investigations and lawsuits play out will have big implications for both merchant cash advance providers and the business owners who rely on them for funding. We’ll be following these cases closely and reporting on new developments as they emerge.