The contrasts between deadbeat borrowers and opportunistic lenders, as the providers and users of merchant cash advance financing claim, are perfectly illustrated in two lawsuits filed on November 9 in the Westchester Supreme Court.
Greenwich Capital Management Limited Partnership of White Plains says the owner of Auto Custom Leathers Inc. of Ludlow, Massachusetts quickly defaulted on a $ 76,945 loan and filed for bankruptcy.
Dave Hancock of Yonkers said in a separate complaint that New York Unity Factor, of Manhattan, illegally charged his company up to 288% interest.
Merchant cash advances are also known as accounts receivable financing. The trader receives a quick injection of money. The lender gets a percentage of the future income to be assessed daily on the merchant’s bank account.
The industry characterizes financing as a purchase of future assets and claims that advances are not, in fact, loans.
The business owner is usually required to sign an admission of judgment securing the agreement and waiving the right to defend themselves in court. Many states have banned admissions of judgment because of the potential for abuse, according to a 2018 series on cash advances to traders by Bloomberg News. New York allows them.
In the case of Greenwich Capital, Auto Custom Leather agreed in January and April 2019 to sell a total of $ 76,945 in future revenue for $ 55,000.
Owner Gerald Zalucki guaranteed payment. He also signed documents in which he said he had no plans to cease operating the business within a year and that he had no plans to file for bankruptcy.
Four months later, Auto Custom Leather reportedly stopped repaying the loan, and Zalucki filed for Chapter 13 personal bankruptcy, declaring $ 269,050 in assets and $ 315,374 in liabilities.
Zalucki did not name Greenwich Capital as a creditor, according to the complaint, and Greenwich Capital was not aware of the bankruptcy until after the Chapter 13 plan was approved last January.
Greenwich Capital says Zalucki still owes $ 45,456 on initial transactions, plus 16% interest per annum as of August 2019.
Zalucki’s bankruptcy lawyer Eric Kornblum did not respond to an email asking for his client’s version.
Dave Hancock paints a very different picture. As an officer for CPC Construction, from Gilbert, Arizona, he and Alan Langer, also from Yonkers, made three deals with New York Unity Factor.
Each new agreement absorbed the terms of the previous agreement. As of November 2018, Hancock and Langer had agreed to sell more than $ 2.8 million in future revenue for around $ 1.3 million. The company had to pay back $ 25,000 a day for 113 days.
Hancock and Langer signed admissions of judgment securing the obligation.
The agreements were made with Complete Business Solutions Group and were subsequently acquired by New York Unity Factor.
New York Unity Factor filed a lawsuit in 2018 to enforce the judgment admissions, and a Westchester Supreme Court judge approved the judgments.
Hancock argues his judgment should be overturned because the loans were illegal, with interest ranging from 93% to 288%, while New York City does not allow more than 16% interest.
He cites a July 2020 emergency action filed by the United States Securities and Exchange Commission against Complete Business Solutions in federal court in Miami. The SEC accused the company of making opportunistic loans and charging small businesses more than 400% interest.
Hancock has some basis for optimism. Last year, her partner, Langer, filed an almost identical lawsuit against New York Unity Factor.
On August 11, Westchester Supreme Court Justice Linda S. Jamieson allowed Langer’s motion to set aside the judgment because the lender had failed to respond to Langer’s complaint or petition.
Attempts to ask New York Unity Factor for its side of the story have failed.
Greenwich Capital is represented by Manhattan attorney Jonathan M. Borg. Hancock is represented by Brooklyn attorney Jay B. Itkowitz.