Federal and state regulators are cracking down on lenders targeting small businesses with high-cost loans and abusive collection tactics, generating unease in a lightly regulated industry that has flourished as it put merchants in a vise.

One company, Par Funding, of Philadelphia, was raided by the FBI on July 28, an FBI official confirmed, and has been sued by the Securities and Exchange Commission. Two others — RCG Advances and Yellowstone Capital, both of New York — have been sued by the Federal Trade Commission for allegedly misrepresenting the terms of their financings. The New York attorney general also sued RCG, contending that it sometimes threatened physical violence to compel repayment.

Known as merchant cash advance companies, the lenders provide money to small businesses based on their current revenues. The merchants typically give access to their bank accounts for daily and weekly repayments that total a larger amount over time.

More than a dozen merchants in six states told NBC News that even after their revenues vanished amid COVID-19 shutdowns, the lenders kept extracting money and sometimes moved to freeze their assets.

Jay Hoehn was one. Founder of a personal training studio in La Jolla, California, Hoehn borrowed $9,000 from Par Funding in late February after a surgery set him back. No bank would lend to him, he said, and he agreed to repay Par around $16,000 over time.

Jay Hoehn in the La Jolla, Calif., gym that he owns with his wife.NBC News

After the California governor ordered all gym facilities closed in mid-March, Hoehn said his revenues dried up and he could no longer pay. Hoehn said Par threatened to email his clients demanding they pay it any money they owed Hoehn. On July 27, the day before the FBI raid, Par filed a confession of judgment against Hoehn, a legal action that can freeze a merchant’s bank accounts and that requires borrowers to admit liability automatically when the lender sues them.

“It almost seems like it is a gangster operation,” Hoehn told NBC News.

Hoehn provided NBC News with a copy of an email Par sent to his clients demanding payment because Hoehn had defaulted on a loan agreement. “Failure to comply as directed by this letter and act in proper accordance with the statutory law, may lead to prosecution and litigation,” the email said.

Par’s lead lawyer, Brett A. Berman, declined to comment.

Because they are not banks, merchant cash advance companies have been subject only to light regulations. Effective interest rates on the companies’ advances can be astronomical — at Par they hit 400 percent, according to the SEC, and often exceeded 1,000 percent at RCG, New York state said. Some companies’ aggressive, even menacing, collection techniques have also been detailed; according to the New York state suit against RCG, one executive told a customer, “I am going to make you bleed,” and told another he would kidnap his daughters if he didn’t make the payments.

A lawyer for RCG declined to comment.

Now, officials investigating merchant cash advance companies say they are examining whether the funding arrangements should be subject to so-called usury caps and federal and state protections.

“We’re looking hard to make sure that those lenders aren’t adding to the misery and setting small businesses up to fail,” said Rohit Chopra, a commissioner of the FTC, in an interview with NBC News. “We’ve started suing some of them and I’m looking for a systemic solution that makes sure they can all be wiped out before they do more damage.”

The gym that Jay Hoehn and his wife May own in La Jolla, Calif.NBC News

The merchant cash advance business has been in growth mode since the 2008 financial crisis when major banks began cutting back on small business loans. Stepping in to fill the void, merchant cash advance companies provided an estimated $19 billion in funding to small businesses last year, up from $8 billion five years ago.

The SEC’s case against Par Funding and other entities contended that nearly $500 million was raised from investors through unregistered securities that Par then loaned to small businesses at sky-high rates. In its suit, the SEC identified Joseph W. LaForte as “the de facto CEO of Par” and “a twice-convicted felon” who before creating the company “was imprisoned and ordered to pay $14.1 million in restitution for grand larceny and money laundering.” In 2009, for example, federal prosecutors in New Jersey brought a case against LaForte charging him with conspiracy to operate an illegal gambling business. LaForte was sentenced to 10 months in prison.

LaPorte was arrested Aug. 7 on a weapons charge in Haverford, Pennsylvania, and is in federal custody awaiting a bail hearing Tuesday afternoon. Investigators had found seven loaded guns in his possession, a violation given his prior conviction of crimes punishable by prison terms of over one year. Michael Engle, LaForte’s lawyer, declined to comment.

“We’ve started suing some of them and I’m looking for a systemic solution that makes sure they can all be wiped out before they do more damage.”

The FBI official said its investigation into Par is ongoing. The federal judge overseeing the SEC case granted the agency’s request to appoint a receiver to run Par Funding.

LaForte is represented by Berman, Par’s lawyer. He declined to comment on LaForte’s behalf.

In court filings, lawyers for Par Funding said that the company and its owners vigorously dispute the SEC’s allegations and that the company “uses best business practices and has a full-time compliance officer on staff.”

An Aug. 4 court filing by Par’s lawyers said it was pursuing 1,000 collection actions against borrowers it characterized as in default. The filing said the company was thriving before the COVID-19 pandemic hit, generating $104 million in retained earnings.

NBC News obtained a videotape of an investor pitch dinner in Nov. 2019 hosted by Dean Vagnozzi, head of an investment firm that raised money for Par and was sued by the SEC. On the video, in which Par executives also appear, Vagnozzi promises investors returns of between 10 percent and 14 percent, saying that the outsized returns were possible because merchant cash advance companies like Par charge interest rates of 35 percent and more.

Brian Miller, a lawyer for Vagnozzi, said in a statement that the case against his client related to just one part of his business. “Based on all of the information Mr. Vagnozzi was provided by Par, the Par Funding business appears to be a legitimate business providing financing to small businesses, some of which are now experiencing financial difficulties in the middle of the pandemic and economic downturn.”

“I fault myself because I didn’t do enough research” about Par, said Hoehn, the personal trainer who borrowed from Par, “but it’s totally inappropriate for them to harass me for receipts I’m not getting.”

Bryan Hartig, a pet food manufacturer in Bangor, Pennsylvania, had a similar experience with Par.

“When COVID started we called them and said, ‘We are out of business,'” Hartig told NBC News. His company sells its products at fairs and festivals, he said, and “every one of them was shut down across the country.”

Par didn’t care, Hartig recalled. “They said, ‘We’re going to take your house, take your cars,'” he said. “They sent letters to my vendors that I do business with to make my products. Once they sent those, the vendors said, ‘Oh, gosh, this guy is in trouble,’ and they cut all my credit lines.”

Some merchants told NBC News they were forced to sell their businesses to get out from under their obligations to merchant cash advance companies.

One is Jim Cook, a social worker and founder of Antelope Valley Community Clinic, a nonprofit healthcare facility that serves over 100,000 people in Lancaster, California, many of them indigent.

In 2017, after the clinic fell behind on billing and payroll taxes, its chief financial officer borrowed around $1.2 million from several companies. One was a unit of RCG Advances, sued by the FTC and the New York attorney general in June.

Cook said RCG’s automatic withdrawals were soon eating away more of the clinic’s cash flow than it could withstand. The clinic’s board decided in early 2018 to stop the payments.

“The lenders started putting liens on our bank accounts and our vendors,” Cook said in an interview. Even his personal bank account was frozen. “We fought with them through 2018 until the board and I decided that we weren’t getting out of this on our own,” Cook added.

Cook and the clinic’s board decided to sell to another nonprofit. But he said they wound up paying $2.6 million to get out from under the $1.2 million in merchant cash advances they’d taken on.

“The clinic I started continues to serve and does good work,” Cook told NBC News. “But I lost something I had started from scratch.”

Jay Hoehn sanitizes equipment in his La Jolla, Calif., gym.NBC News

Letitia James, New York state’s attorney general, is continuing to investigate the merchant cash advance industry, according to her spokesman, Fabien Levy. “Many small businesses are struggling and trying to figure out how they can get by,” Levy said. “We don’t want them to feel they have no other option but to go to these predatory lenders.”

The most recent suit filed by the FTC was against Yellowstone Capital on Aug. 3. It accused Yellowstone of telling borrowers they were not required to sign personal guarantees to get funding when in fact they were. Yellowstone also withdrew more money from borrowers’ bank accounts than they had agreed to and kept withdrawing funds after the financing had been fully repaid, the FTC said.

NBC News tried to reach Yellowstone for comment but no one answered the company’s phones. A lawyer representing Yellowstone did not return an email seeking comment.

Shane Heskin, a lawyer at White and Williams, has represented borrowers in lawsuits against these and other merchant cash advance companies since 2016 when his father-in-law became ensnared in such loans.

“I was an insurance lawyer — I had no idea this industry existed,” Heskin told NBC News. “Because it was family, I dug into it and was shocked to find out what was going on. I’ve been on a crusade ever since.”