Just like your family budget, cash flow can be a problem for small businesses.
And there is no shortage of lenders who offer quick and temporary financial benefits.
Rick Hagen has joined with one to help with cash flow in his local auto sales business.
But Hagen told NBC 7 that the transaction quickly became a financial nightmare, which eventually led to his bankruptcy.
“You’re just a victim,” said Hagen. “You are the next person online they will do it.”
Hagen loves cars. His passion for unique and high-end vehicles has helped him shape his career as a personal shopper for car enthusiasts looking for that special ride.
Hagen told NBC 7 to regularly use short-term loans to bridge his financial transactions. This is what led him to a New York-based lender that Hagen said he offered to quickly finance a small business loan at 16% interest.
“Here is their point of view,” recalled Hagen of the tone obtained by Last Chance Funding / LCF. “” We are transparent and we want to help you grow your business. “”
But Hagen said he didn’t realize that if he stayed behind in his payments, that interest rate would skyrocket.
“So if you really try, you’re not paying 16%,” he said. “You are not paying 25%. You are paying 100, even 180%. And it could be more.”
In fact, at one point, Hagen and his attorney claim that LCF and its affiliated lenders were charging 360% of interest on Hagen’s outstanding balance to Hagen.
Hagen’s attorney, Michael Alfred, told NBC 7 that those astronomical interest rates were legal because Hagen had not technically signed a loan, but had instead taken a “commercial cash advance,” which Alfred said allowed the New York lender to avoid interest rate limits and anti-usury laws.
Worse still, Hagen had signed a “confession of judgment”, in which he essentially waived his right to a court hearing in the event of a breach of his refund agreement.
Alfred said that Hagen is not the only small business owner who found himself financially upside down after signing similar contracts.
“It’s not just Rick,” said Alfred. “Thousands of companies in many different sectors (get these loans).”
Hagen says the New York lender has rejected his repeated grounds for a reasonable payment plan and that a company representative immediately told him in “I’ll get you through hell, Rick. You’ll never forget me. I’ll make you fail.” “
Hagen said the New York lender tried to drain his bank accounts when he fell behind on his payments. After obtaining a judgment against him, Hagen stated that the company placed a guard in front of his 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 racketeering company and other civil offenses. But Hagen’s case was unsuccessful and his lawsuit was dismissed last November.
A spokesperson for Last Chance Funding / LCL told NBC 7 that other “ongoing disputes related to this matter prohibit us from discussing the details of Hagen’s allegations.” But the spokesman noted that Last Chance Financial has so far prevailed in court against Hagen. “The same district court case (which Hagan filed unsuccessfully last year) attempted to challenge the judgments of two separate courts, which had both decided in favor of LCF,” said the spokesman.
After losing the federal court case, Hagen filed for bankruptcy. But Last Chance Financial is now challenging its ability to pay off its debt to the company.
In a complaint filed in that bankruptcy case, Last Chance Financial claims that Hagan did not disclose the existence of other unpaid debts and judgments when he signed his “commercial agreement” with LCF. This omission, the company claims, allowed Hagan to “obtain money (from LCF) with false claims, false statements or real fraud”.
Therefore, Hagan is still responsible for the debt, claims the company.
When filing for bankruptcy, Hagen also closed the doors to Euromotorwerks. He still hopes for a second chance in the business he loves. In the meantime, he has a new passion for protecting consumers and small business owners from the potential nightmare of commercial cash advances and confessions of judgments.
“I just need everyone to know, if they can do it for me, they will do it to them,” he said. “And they will.”
Last Chance Financial / LCF has a very different opinion of its services. “A merchant cash advance is a valuable tool for companies and LCF has helped thousands of companies in the United States expand and maintain their operations,” the company spokesman told NBC 7.