If the merchants fall behind on their payments, some lenders send threatening emails and texts and even pay visits to borrowers’ homes to try to collect, lawyers and small business owners say.

NBC News reviewed some of the communications, including videos of a visit by a collection agent to a borrower’s home and another to a borrower’s office by an expletive-spewing man trying to collect on a loan. “You will end up hurt. Hurt bad,” one text said.

The most common arrangements between these companies and small business borrowers aren’t technically loans, and therefore their terms and the companies offering them aren’t regulated.

That must change, Chopra said. “The FTC has to seriously look at rules that ban some of the most extortionate clauses in these loan contracts,” he said, adding that the FTC is prepared to “go after some of the loan sharks and their lawyers who run lawsuit mills that are filing some of these sham collection actions.”

How it works

Merchant cash advance companies like PowerUp aggressively cold-call, email and text small business owners offering quick and easy funding, merchants told NBC News. The offers are alluring to owners who often operate on the edge and are strapped for cash.

The companies generally provide a predetermined amount of money to a business in exchange for future receipts. As in any industry, some of the companies’ practices are more problematic than others.

The agreements are enforceable contracts the borrowers have agreed to, lawyers say, but some of the aggressive collection practices, such as visiting borrowers’ homes, aren’t legal, they contend.

Under a typical deal, a business might receive $40,000 in exchange for agreeing to hand over $50,000 in future revenue over a few months. Merchants are typically required to repay the advances via automatic withdrawals from their bank accounts every day or week.

To secure the financing, business owners must provide documents detailing their recent sales and identifying their business partners, including their customers, and the amounts they owe, known as accounts receivable.

Owners must also give the lenders unfettered access to their bank accounts for the automatic withdrawals. If revenue dries up and the money stops flowing, merchant cash advance companies can freeze business owners’ accounts by filing so-called confessions of judgment.

Companies often choose to make the filings in New York state, because its statute is powerful and easy to use. For instance, the filings can be entered without a hearing or review by a judge.

The filings are often in amounts that are twice the money owed, say lawyers who work in the arena. They are filed without a business’ knowledge; merchants often learn about them when they try to pay their employees and find their accounts blocked, the lawyers say.

The merchant cash advance companies often demand that borrowers also pay attorneys’ fees, which can be 25 percent to 33 percent of the balance due under a borrower’s agreement, documents show.

Legal filings by cash advance companies, including confessions of judgment filed against small businesses, have been ballooning amid the coronavirus crisis. Court filings in New York state show at least 313 legal actions brought by 98 companies from March 9 to March 20.

The flood receded when New York courts stopped accepting electronic filings in nonessential matters on March 23.

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Itria Ventures of New York City, an affiliate of Biz2Credit, is among the merchant cash advance companies that filed numerous confessions of judgment in March. During the three-week period, Itria filed confessions of judgment against 20 small businesses for nonpayment, court records show, most of them outside the state. In all cases, the businesses had stopped paying in March as the coronavirus clobbered operations and governments required that many nonessential companies close.

Small businesses sued by Itria included a builder’s company in Minnesota, a grocery in South Carolina, a Holiday Inn Express in Wyoming and a barbecue joint in Alabama, court filings show.

Lone Spur Café, a six-restaurant chain in Arizona and Colorado, also received a judgment from Itria on March 19, demanding $282,000.

On March 23, Kayla Kight, a server at a Lone Spur in Prescott, Arizona, told NBC News that hers was the only restaurant in the group open for business and that it was just providing takeout.

Business is hurting, Kight said by phone. “It’s down a lot, more than 50 percent,” she said. “Normally we’re usually really busy. But there’s nobody outside.”

NBC News asked Itria and Biz2Credit why they were taking such an aggressive tack against small businesses during a national disaster.

Rohit Arora, Biz2Credit’s co-founder and chief executive, said in a telephone interview: “In some cases, we have to file these cases, but we also try to work with our customers.”

Shortly after NBC News spoke with Arora, Itria withdrew its court actions against Lone Spur and other small businesses, court records show.

‘A cycle of death’

“Now, more than ever, alternative lending is going to be needed by small businesses,” said Shane Heskin, a lawyer at White and Williams, who represents Indelicato of North River Outfitter and other merchants against direct lenders. “You can’t have people freezing assets and demanding payments at a time like this.”

When merchants fall behind on their payments, some direct lenders send threatening emails and texts, owners and their lawyers say. (NBC News received no evidence that PowerUp, Itria or Biz2Credit had sent menacing messages to borrowers or had sent debt collectors to their homes.)

“If you don’t send money to me today you’re done,” said a recent text shared by a business owner. “I will put you in the hospital and your family, call the police I don’t care, you and your family will pay.” Another text to the owner included a Google map showing a driving route the debt collector was taking to the borrower’s home. “Currently in route to u right now,” the text said. “I’ll show you what type of loser you are you clown of a man.”

Heskin, who testified last year before Congress about the lenders’ tactics, said one of his law partners found a disemboweled rat splayed atop his mailbox in front of his home. He provided a photo to NBC News.

Indelicato said he began dealing with merchant cash advance companies around 2016, when he wanted to expand his business and needed more money than his conventional bank loan could provide. He said the companies have almost killed his business.

“We went from having good credit and eight or nine stores to having bad credit and three stores,” Indelicato said in an interview. “On some of our loans, we were paying over 200 percent. It became a cycle of death. They have access to your bank accounts — they can wipe out an account overnight.”

On March 27, NBC News contacted Bernard Feldman, a lawyer for PowerUp Lending, about the Indelicato case. In a return email, he said the firm had decided to stand down for the moment. “We have no intention of pursuing this matter at the present time,” Feldman wrote.

An email to PowerUp requesting comment received no response.

Another small business borrower who’s been through the wringer with merchant cash advance companies is Jon Runion of Runion Dental Group in Columbus, Ohio.

In mid-2018, Runion, an oral surgeon, wanted to add a second location to his practice and had initial approval from a bank for financing. But the bank backed out after he had signed a new lease and begun construction on the second office, and by spring of last year, Runion said, he desperately needed funding. The only source of capital he could find was from merchant cash advance companies.

“Working with a broker, I thought he was going to get me a traditional loan — that was how the conversation started,” Runion said. “He more or less presented me the net cash I would receive and the payments. He didn’t talk too much about how it was secured or the workings of it.”

Soon after he received the money, the amount of the repayments began rocketing, Runion said. When they reached $70,000 a month, he had trouble paying his vendors.

Runion said he told the cash advance companies that he didn’t have the money to pay them. “Their strategy was always to get more,” he said.

He stopped paying around Thanksgiving and hired a restructuring firm, Second Wind Consultants, to help him work out the loans.

On March 15, the governor of Ohio ordered an end to all oral surgery procedures; Runion’s practice is now open six to eight hours a week.

Runion said the companies that advanced him cash have persuaded an insurer holding $40,000 in reimbursements for procedures he had already completed to send the money to the advance company, not to Runion. Other insurers have stopped reimbursing Runion after the advance company notified them that it had sued him. The merchant cash advance agreements typically allow for these remedies.

Runion concedes that he signed the documents that have created the problems. “I tried to make it work,” he said, “but I really was unable to.”

Meanwhile, as the crisis spreads, cash advance companies are on the hunt for new customers. Some business owners said they are being swamped with new texts and emails offering funds.

“They’re all capitalizing right now on the virus,” a beleaguered borrower said, “and saying they are there to help you.”