UCC Liens and Merchant Cash Advances Explained
When you receive a merchant cash advance, the funder almost always files a UCC (Uniform Commercial Code) lien against your business. Understanding what this means and how it can affect your business is important for any business owner dealing with MCAs.
Why This Matters
UCC liens are public records that other lenders, vendors, and business partners can see. They can affect your ability to obtain additional financing and may give the MCA company significant rights over your business assets.
What Is a UCC Lien?
A UCC filing is a legal notice that a creditor has an interest in your business assets. It is filed with the state and becomes part of the public record. UCC liens do not require your permission beyond signing the financing agreement.
Types of UCC Liens
- Blanket liens - Cover all business assets including equipment, inventory, receivables, and sometimes intellectual property
- Specific asset liens - Cover only particular assets, such as equipment purchased with the financing
Most MCA companies file blanket liens, giving them broad claims over your business assets.
How UCC Liens Work with MCAs
When the Lien Is Filed
UCC liens are typically filed at the time of funding or shortly before. You may not receive explicit notification, though the right to file is usually contained in your MCA agreement.
Priority of Liens
UCC liens are generally prioritized by filing date. If you have multiple MCAs with UCC filings, the first one filed typically has first claim to assets. This affects recovery in case of default.
What the Lien Covers
Review your MCA agreement to understand exactly what assets are covered. Blanket liens typically include:
- Equipment and machinery
- Inventory
- Accounts receivable
- Deposit accounts
- General intangibles
Impact on Your Business
Future Financing
Other lenders will see existing UCC liens when they conduct searches. Multiple liens can make it difficult to obtain traditional financing, as banks may be unwilling to take a subordinate position.
Asset Sales
If you try to sell business assets covered by a UCC lien, the lienholder has a claim to the proceeds. Proper lien releases may be required before completing sales.
Default Consequences
Upon default, the MCA company may attempt to enforce the lien by claiming assets. However, enforcing a lien against business assets can be complicated and is not always successful.
What Business Owners Often Do
- Review their agreements - Understand exactly what liens were agreed to
- Search for existing liens - Check Secretary of State records to see what is filed against your business
- Monitor lien filings - Be aware of new liens that may be filed
- Request lien releases - Ensure liens are properly terminated after payoff
- Negotiate lien terms - In restructuring, lien modifications may be part of the agreement
What to Avoid
- Ignoring UCC filings - Know what liens exist against your business
- Assuming liens disappear automatically - They must be properly terminated
- Selling assets without addressing liens - This can create legal complications
- Taking multiple MCAs without understanding lien implications - Stacked liens complicate your situation
Frequently Asked Questions
Can I remove a UCC lien before paying off the MCA?
Generally, no. The lien is security for the debt. However, in settlement negotiations, lien release can be part of the agreement.
How long do UCC liens last?
UCC liens typically expire after five years unless renewed. However, they should be terminated upon payoff rather than waiting for expiration.
Will UCC liens show up on my credit report?
UCC filings do not appear on personal credit reports but are part of the public business record. They appear in searches conducted by lenders and may affect business credit profiles.
Can an MCA company seize my assets using the UCC lien?
Enforcement varies. MCA companies may attempt to claim assets upon default, but actual seizure often requires legal proceedings. The practical enforceability depends on your specific situation and jurisdiction.
How do I get a lien released after paying off an MCA?
Request a UCC-3 termination statement from the MCA company. This should be filed with the state to officially release the lien. Follow up to ensure it is actually filed.