Lately it seems I have heard more stories of scams being attempted against small business owners. During the last several days I have had ongoing Email communication with a woman whose father owns a small business.
The woman who read one of my previous blog pieces about Uniform Commercial Code Financing Agreements (UCC-1s), wrote me early in the week to ask if a finance company could just file a UCC-1 financing statement against a company without their permission.
UCC-1 financing statements are used everyday by banks, leasing companies, and lenders to give public notice of their legal interest in a business’ collateral related to a a loan or other type of financing they provide.
My reader wrote me and told me that her dad’s business was receiving letters from two different finance companies indicating that they had filed a UCC-1 against his company so he could borrow money from them easily by just giving them a call.
My reader told me her dad was pretty certain that he had not signed any agreements with either of these lenders. Both were in the credit card advance business and both letters were worded in a similar fashion.
The good news is the owner of the business receiving these notices didn’t need to get very expensive advances against his business’ credit card receipts. He did try to contact the companies to find out if they had indeed filed a UCC-1 financing statement and couldn’t get meaningful answers.
The reader did give me the names of the two companies. One was based in
In my reader’s case, she followed my advice which was to go to her state’s record-keeper of UCC-1 financing statements and search for any against her dad’s business. Most states provide free or low cost online search capabilities. She did discover one UCC-1 filing from the bank her dad had a legitimate loan with.
My advice to her and everyone else is to check UCC filings against your business every year. Some unscrupulous finance companies have fine print at the bottom of their loan applications allowing them to file a UCC-1 simply because you sign the application before you actually get to a point of negotiating terms of a financing arrangement.
My partner and I have run into the situation a dozen of times in the past 6 years where a business owner signed an application where the very small print at the bottom of the loan application gave the finance company the right to file a UCC-1 financing statement.
In several cases we have helped businesses with, the finance company never intended to provide financing but held the position that they spent time evaluating the application and doing due diligence on the company. To get the financing statement terminated we have seen companies pay between $750 and $2,500 in “extortion fees” to finance companies that wouldn’t terminate their filings until the money was paid.
You can do several things to protect against this kind of scam.
First, be very cautious about finance companies that make unsolicited advances toward your business. You are much better off getting a referral from a peer business than simply trusting a salesman that walks off the street or calls you on the phone.
Second, never sign any legal document (and consider an application for financing a legal document) that you haven’t completely read. If you don’t understand the agreement you are signing, don’t sign it. Your attorney can help you understand it if you don’t.
Third, shop around if you do need advances against your credit card receipts or other types of commercial finance.
Lastly, call references and check with the Better Business Bureau in the city where the potential finance company is based for negative ratings. The old saying, “If it sounds too good to be true, it probably is” fits many unscrupulous finance companies.
You may contact Sam directly at: firstname.lastname@example.org
or follow him on Twitter: SMBfinance
EXTRA: If you have questions for Sam regarding business financing, the credit market, and similar issues, please send an e-mail. Your questions will be recorded and Sam will answer the best ones in his Ask the Expert podcast show.