There’s a dangerous document that could ruin your financial health, and that’s called a Confession of Judgement. Learn what this is, why it is so harmful, and how you can avoid signing one.

There’s a dangerous document that could ruin your financial health, and that’s called a Confession of Judgement. Learn what this is, why it is so harmful, and how you can avoid signing one.

 

Since the recession, small businesses have had trouble getting loans from traditional banks. Businesses need working capital to survive, and smaller businesses can really struggle if they can’t get financing when they need it.

Just like most American households, when entrepreneurs are tight on cash things can get desperate. Alternative lenders know this, and some take advantage of this desperation. We’ve written about Merchant Cash Advances (MCAs) before, for-profit companies who offer lighting fast approval and super easy qualifications, even with bad credit.

The problem with MCAs is that they often aren’t transparent about how much this money will cost you. We’ve conducted industry research on these harmful practices, which you can read about here. Not only will you be stuck with high interest rates and hidden fees, leading to painful APR levels, but some MCA businesses may ask you to sign a Confession of Judgement (CoJ).

What is a Confession of Judgement?

A CoJ is an old legal document dating back hundreds of years intended to enforce debts without the hassle and enormous expense of trials. Although most states banned confessions of judgement in the nineteenth century,  they were still used in consumer loans until 1985. Even now, New York allows companies that have an office located within the state to use a CoJ.

When a borrower signs a CoJ to get an MCA, they are “giving up their right to defend themselves if the lender takes them to court. It’s like an arbitration agreement, except the borrower always loses. Armed with a confession, a lender can, without proof, accuse borrowers of not paying and legally seize their assets before they know what’s happened. Not surprisingly, some lenders have abused this power. In dozens of interviews and court pleadings, borrowers describe lenders who’ve forged documents, lied about how much they were owed, or fabricated defaults out of thin air”(Bloomberg).

To make matters worse, language pertaining to confessions of judgment are often times embedded well within the loan contract. It can be difficult to find, and borrowers end up releasing their right to arbitration without knowing.

How You Can Protect Yourself

If a lender requires you to sign a CoJ before they will give you money, that is a giant red flag. Not every lender who asks you to sign will call you with threats and drain your bank accounts overnight, but by signing a CoJ, you are giving them the freedom to seize your financial assets without warning. It is important to know your rights as a borrower, and as a small business owner you don’t want to sign those away. To learn more about your rights, read the Small Business Borrowers Bill of Rights co-authored by Opportunity Fund.

Always do your research and educate yourself about lenders and their offers before you sign anything. Arming yourself with knowledge is the best thing you can do for your business and your financial health. We created a free business loan calculator for you to figure out how much a loan – or cash advance – will really cost you.

Take your time to find a lender who is trustworthy, transparent, and upfront. Confessions of Judgement are potentially dangerous to your business – borrowers beware!

 

For information about Opportunity Fund’s small business loans, please contact us at 866-299-8173 or loans@opportunityfund.org.  For questions about your existing loan or other customer service questions, please contact us at 866-299-8173 or sbhelp@opportunityfund.org.

Loans are subject to credit review. Additional documentation may be required for credit approval. We are an Equal Opportunity Lender. Loans will be made or arranged pursuant to California Department of Corporations Finance Lenders License #6050609.


Opportunity Fund is tackling economic inequality so that hard work and perseverance means a shot at getting ahead, not just struggling to get by. Our programs are supported by a community of donors and investors whose contributions help to fund small businesses, support college students, and build stronger families and vibrant neighborhoods. Since 1994, the team has deployed $700 million and helped thousands of families earn, save and invest in their own futures. Opportunity Fund has earned a 4-star rating from Charity Navigator, America’s largest independent charity evaluator, for our commitment to accountability and transparency.

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Opportunity Fund. Working Capital for Working People. opportunityfund.org