The alarming call came from Jane’s daughter, away at college: her debit card wouldn’t work. The family shared the bank account, and when Jane called the bank she was told the money was still there — but frozen. The directive to lock every account came from a finance firm that had lent to Jane’s small business. There had been no court order, no hearing.
“It devastated my family and my business, with no warning, zero warning,” Jane says. “They shut down my entire life — not just my business accounts, my entire life.”
Jane runs a small medical-industry firm in Indiana. She asked NPR to use her middle name so she could speak candidly about debts she hasn’t disclosed to customers, employees or industry peers. Some settlement talks are still underway.
She had turned to a murky, largely unregulated corner of finance: merchant cash advances, now one of the fastest-growing small-business funding sources. One state, Connecticut, has given lenders there an unusual contractual tool to go after merchants who fall behind. Lawmakers plan another vote this spring to limit that power.
Daily payments for emergency help
Three months earlier, in October, Jane took a merchant cash advance (MCA) for $50,000. Like many entrepreneurs, she wanted an emergency lifeline: after years in the field she launched a new firm as inflation and election uncertainty tightened clients’ budgets. Sales were okay but not enough. Traditional banks turned her down because the company was new and risky.
“When payroll is coming due, rent’s coming due, you start to panic,” she says. She searched online and started getting calls. “All of a sudden, my phone just started blowing up with, ‘We can give you $100,000 — just send me your last few months of bank statements.'”
MCA lenders often fill that gap. The industry is vast and chaotic: funders range from big corporations to predatory outfits, backed by Wall Street or venture money. Cash arrives fast — within hours — with little paperwork. But it’s expensive.
Jane admits fear drove her decision. After fees, she received just under $47,000 but agreed to repay $72,500. MCAs are repaid as a cut of future sales, taken directly from a bank account. Her lender automatically withdrew $558 every day.
Because MCAs are legally structured as purchases of future sales rather than loans, many lending laws don’t apply. There are generally no caps on fees, and most MCA lenders don’t need state licenses.
“They set these small daily payments, and they seem fine — until you get into them and you start paying them,” Jane says. “And that’s when I quickly saw I made a big mistake.”
Special legal power in Connecticut
Although Jane lives in Indiana and her lender is based in New York, their contract identified Connecticut law to govern disputes. That choice matters: Connecticut allows lenders to include a prejudgment remedy waiver in contracts. If a borrower falls behind, a lender can present an affidavit claiming default and direct the borrower’s bank to freeze all accounts — fast and without prior judicial review — while pursuing collection.
Use of this tactic from Connecticut has exploded in recent years. Many MCA firms shifted there after New York tightened rules in 2019. In a 2022 deposition, a New York MCA lender praised Connecticut’s process as “probably the most effective way of getting a merchant at least to speak to you again after they have defaulted.”
A borrower can challenge an asset freeze in court, but that requires hiring counsel (often in Connecticut), paying fees and waiting — all while access to funds is blocked. Most small-business owners settle quickly rather than face that ordeal.
Connecticut restricted prejudgment remedy waivers for cash advances under $250,000 in 2023, but some MCA lawyers have interpreted the law in ways that allow them to keep pursuing borrowers.
The situation became worse for Jane. The daily auto-withdrawals left her sleepless and hungry; her MCA payments snowballed into more advances. She took four MCAs in total, each meant to relieve the last.
“What happened is a snowball effect,” she says. “When your head is spun into fear, you just see — we’ll get out of this hump, we can handle this. And then when I saw that wasn’t working out, I thought, ‘Well, we’ll get to our busy time and that’ll make it up.’ And you do it again.”
The state legislature tries again
Connecticut attorney Jonathan Jacobson, who now serves as a state representative, began representing out-of-state small-business owners facing these collection tactics. He calls the industry “the golden age of piracy” and has introduced a bill that would outlaw prejudgment remedy waivers for merchant cash advances.
At a hearing, an attorney who has pursued hundreds of similar cases argued the bill would discourage lenders and leave businesses with fewer options. “There’s going to be no security,” he testified. “There’s going to be very little ability for them to essentially recoup money when the merchants themselves are there to take the money and never pay it back.”
Much opposition has focused on another provision in the bill: it would require MCA lenders to disclose fees similar to how credit cards and mortgages reveal an estimated annual percentage rate (APR). The industry fights APR-style disclosure measures elsewhere too. Even so, the Revenue Based Finance Coalition, which represents funders and brokers, backed the ban on prejudgment remedies, calling it an important guardrail.
“It spiraled for me”
In December, a firm texting about helping negotiate high-cost debt contacted Jane. It suggested she stop communicating with lenders and block autopayments; the intermediaries took a fee and vanished. By then she had missed enough payments that her original lender declared her in default.
When the lender filed a collections lawsuit in Connecticut, an affidavit claiming missed payments was enough for a state marshal to instruct her bank — which had a Connecticut branch — to freeze her accounts. Without access to money, Jane calculated her business would last no more than 10 days.
“I wish I would have known more, I do. That was my fault — that falls on me,” she says. She borrowed from friends and scraped together funds to hire a Connecticut lawyer. In January she settled with that lender with a big payment. She’s still negotiating over other MCAs but says the business is holding on.
“If she looked back now with a trained eye, she might have spotted the warnings midway through her MCA contract, toward the end of a full page blanketed in bolded all-caps: ‘THIS PREJUDGMENT REMEDY WAIVER MAY RESULT IN THE ATTACHMENT OF YOUR BANK ACCOUNTS WITHOUT PRIOR NOTICE OR COURT HEARING.'”
Jacobson says nearly no merchants understand such clauses when they sign. Since his bill’s introduction, it has drawn bipartisan support from more than two dozen co-sponsors, including leaders of both parties in the House. Connecticut’s legislature is scheduled to vote on the measure before May 6.