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Are you at risk of defaulting on a merchant cash advance, without a confession of judgement in place? We can help you avoid defaulting on your merchant cash advance by helping you consolidate your existing merchant cash advances into one payment, and by refinancing your existing cash advances into more favorable loans.

Over the last few years, there’s been a clause added to many small business merchant cash advance agreements called a Confession of Judgement. They have been used for decades, dating back to early Pennsylvania law. The use of a COJ is very prevalent in merchant cash advances, and other high risk business companies. It’s especially used by merchant cash advance lenders that engage in stacking multiple merchant cash advance positions.

In this article, we’ll talk about what a confession of judgement is – and what options you have to avoid defaulting on your merchant cash advance.

The confession of judgement, also known as a cognovit note, is an agreement between the funder and borrower which states the borrower automatically accepts liability for the merchant cash advance, and also the borrower agrees to waive all legal defenses if the borrower somehow violates the agreement and defaults on it. By using the COJ clause, the funder can bypass the entire legal, and length, process, and it allows the lender to recoup funds much faster. By entering a judgement against the borrower automatically, the lender is able to quickly their original funds back. The COJ allows the borrower to go after the business owners business finances, and possibly even the personal finances, in order to repay the loans. It’s also possible for the funder to place liens against those assets as well. Without a COJ, funders usually had to go through a long process. With a COJ, the borrower has waived their legal rights, and it allows the funder to get judgement without presenting evidence to the court.

Bottom line, if you’re about to default, or thinking about defaulting, and you have signed a COJ – you should rethink what your next steps are. If a COJ is utilized by the lender, the borrower has no ability to defend themselves or object to the judgement. After the COJ is filed in court, the court then gives notice to the borrower that the judgement was entered, which then allows the lender to begin levying your business and personal accounts.

Why are lenders using COJs?

Many lenders that offer high risk commercial financing options use COJ to reduce their risk, and increase the probability of being paid back. As long as borrowers know that they could have a levy placed on their business, and personal assets, it’s assumed the borrower will prioritize repayment of the loan they took. It is assumed that the borrower will make sure to NOT trigger the automatic default and judgement. Additionally, it is assumed that the borrower will fear taking additional merchant cash advance positions and business loans out of fear of being over leveraged, and putting their business at risk of a default.

If you have a confession of judgement filed against you, you can expect a lot of problems. Keep in mind that the main reason a merchant cash advance confession of judgement is filed is because you defaulted.  Companies default because they didn’t have enough money to make payments. So if your company finds itself unable to meet its financial obligations, it may have a financial levy placed against it – which can put you out of business.

Types of Financing Companies That Use COJs

Equipment financing companies are popular for using the COJ to ensure payment is made. It also ensures the equipment is returned to the leasing company should the borrower default.

Merchant cash advance splits also use COJs to ensure proper repayment. With a merchant cash advance split, you’re selling your future receivables. The merchant cash advance company is collecting its original investment by splitting a % of your daily credit card sales and taking them. MCA split lenders have utilized the COJ in order to make sure the borrower does not default – because small business owners can easily switch payment processors.

Many merchant cash advance lenders that use ACH cash advance to get repaid are inherently afraid the borrower will switch bank accounts. In order to guarantee this doesn’t happen, they use a COJ.

What types of lenders don’t use COJs?

Bank lenders, traditional lenders, like credit unions, do not use COJs, but often require personal collateral. Often, conventional lenders require a personal guarantee of the loan.

SBA lenders also don’t require COJs, because the USA government is backing the loan.

Non-bank private lenders rarely require a COJ, and may not require any collateral at all.

Commercial real estate lenders will typically use the business/personal property as collateral, rather than requiring a COJ.

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