Looking for small business financing? Read this first.

Many small businesses, medical offices, non-profits, and religious organizations turned to a New York company called Richmond Capital for financing, but according to a lawsuit filed by the FTC, they got less – and way more – than they bargained for. The just-filed law enforcement action against a network of related companies and individuals is the latest step in the FTC’s ongoing effort against questionable financing practices that target small businesses.

Richmond Capital Group – now called RCG Advances and also doing business as Viceroy Capital Funding and Ram Capital Funding – claims to offer small businesses immediate funds in exchange for an agreement to repay what they owe from future revenues, usually in amounts taken as daily debits from their bank accounts. The company advertises that it imposes “no upfront costs” and the first page of its contracts prominently display the “Total Purchase Price,” which the FTC says customers understand as the specific amount of financing they’ll get. Furthermore, the defendants’ ads claim they require “no personal guaranty of collateral from business owners.”

But the FTC says those claims are misleading. The complaint alleges that the defendants withhold various upfront fees that are deducted from that eye-catching “Total Purchase Price.” Some of those fees are buried deep in the defendants’ contracts while others aren’t disclosed anywhere. The upshot: The amount borrowers actually get is often substantially less than the total amount promised. The discrepancy has ranged from between several hundreds of dollars to tens of thousands.

In addition, according to the complaint, the defendants have been known to withdraw fees from customers’ bank accounts without their authorization and in violation of their agreements. What about those advertising promises of “no personal guaranty of collateral from business owners”? The FTC challenges those as deceptive, too. The wording has changed over the years, but the complaint alleges the defendants’ contracts most definitely include a “personal guarantee” that customers must agree to.

The alleged violations of the FTC Act don’t end there. According to the complaint, the defendants’ collection practices take things to a whole other level. As part of their contracts, the defendants require businesses and business owners to sign confessions of judgment. Those are provisions that purport to allow the defendants to go immediately to court for an uncontested judgment in the case of a default. But according to the FTC, the defendants use confessions of judgment to seize business assets and personal assets in circumstances not expected by borrowers and not permitted by the defendants’ financing contracts – a practice the FTC alleges is unfair.

Can’t believe it can get much worse? Just wait. The FTC alleges the defendants have used threats of physical violence and reputational injury to induce payment. According to the complaint, defendants’ representatives told one consumer they were going to “break his jaw” if he didn’t pony up. Another rep threatened to “come down there and beat the s**t out” of a consumer. Still another customer was told that if he did not pay, the defendants would falsely accuse him of being a child molester.

The four-count complaint, which also names Robert Giardina, Jonathan Braun, and Tzvi Reich, is pending in federal court in New York. Even at this early stage, the case should send a warning about the caution small businesses should exercise when searching for funding. Especially in light of current financial conditions, the FTC has timely tips for business borrowers.