Just like your family budget, cash flow can be a problem for small businesses.
And there is no shortage of lenders offering fast, temporary financial relief.
Rick Hagen signed up with one to help with cash flow at his local auto sales business.
But Hagen told NBC 7 that transaction quickly became a financial nightmare, which eventually drove him to bankruptcy.
“You’re just a victim,” Hagen said. “You’re the next person in line that they’re going to do it to.”
Hagen loves cars. His passion for unique, high-end vehicles helped him shape his career as a personal shopper for car lovers looking for that special ride.
Hagen told NBC 7 he regularly used short term loans to bridge his financial transactions. That’s what led him to a New York-based lender who Hagen said offered to quickly fund a small business loan at 16% interest.
“Here’s their thing,” Hagen recalled of the pitch he got from Last Chance Funding/LCF. “‘We’re transparent, and we want to help you grow your business.’”
But Hagen said he didn’t realize that if he fell behind at all in his payments, that interest rate would skyrocket.
“So, if you really dig into it, you’re not paying 16%,” he said. “You’re not paying 25%. You’re paying 100, even 180%. And it could be more.”
In fact, at one point, Hagen and his lawyer allege that LCF and its affiliated lenders were charging Hagen 360% interest on his balance due.
Hagen’s lawyer, Michael Alfred, told NBC 7 that those astronomical interest rates were legal because Hagen had not technically signed for a loan, but had instead taken a “merchant cash advance," which Alfred said allowed the New York lender to avoid interest rate limits and anti-usury laws.
Worse, Hagen had signed a “confession of judgement,” by which he essentially waived his right to a court hearing if he defaulted on his repayment agreement.
Alfred said Hagen is not the only small business owner who found themselves financially upside-down after signing similar contracts.
“It’s not just Rick,” Alfred said. “It’s thousands of companies in a lot of different industries (getting these loans).”
Hagen claims the New York lender rejected his repeated pleas for a reasonable payment schedule, and that a company representative at once told him at “I’m going to put you through living hell, Rick. You will never forget me. I will make you bankrupt.”
Hagen said the New York lender tried to drain his bank accounts when he fell behind on his payments. After obtaining a judgement against him, Hagen said the company stationed a guard at his front door to intercept any cash payments from customers.
Hagen sued Last Chance Funding, Inc and other defendants in federal court here last August. His lawsuit accused the company of racketeering and other civil wrongdoing. But Hagen’s lawsuit was unsuccessful, and his legal action was dismissed last November.
A spokesperson for Last Chance Funding/LCL told NBC 7 that other “on-going litigation relative to this matter prohibits us from discussing the particulars of Hagen’s allegations.” But the spokesperson noted that Last Chance Financial has so far prevailed in court against Hagen. “The same district court lawsuit (that Hagan filed last year unsuccessfully) attempted to challenge the rulings of two separate courts, which had both ruled in LCF’s favor,” the spokesperson said.
After losing his federal court lawsuit, Hagen filed for bankruptcy. But Last Chance Financial is now challenging his ability to discharge his debt to the company.
In a complaint filed in that bankruptcy case, Last Chance Financial argues that Hagan did not disclose the existence of other unpaid debts and judgements when he signed his “merchant agreement” with LCF. That omission, the company argues, allowed Hagan to “obtain money (from LCF) by false pretenses, a false representation, or actual fraud.”
Therefore, Hagan is still responsible for the debt, the company argues.
When he filed for bankruptcy, Hagen also closed the doors at Euromotorwerks. He still hopes for a second chance in the business he loves. Meanwhile, he has a new passion for protecting consumers and small business owners from the potential nightmare of merchant cash advances and confessions of judgements.
“I just need everyone to know, if they can do it to me, they’re going to do it to them,” he said. “And they will.”
Last Chance Financial/LCF has a much different opinion of its services. “A merchant cash advance is a valuable tool for businesses, and LCF has assisted thousands of businesses throughout the United States to expand and maintain their operations,” the company spokesperson told NBC 7.