What to Do if MCA Lender Files a UCC Lien Against You

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If you’ve taken out a merchant cash advance (MCA), you may already have an MCA UCC lien on your business credit reports. While this is typical for MCAs and other forms of business financing, it could impact your ability to get credit in the future. This is especially the case if the information in the UCC lien is incorrect.

What’s more, the lien could impact your business if you fail to repay the merchant cash advance. Here’s what you need to know about MCA UCC liens, how they affect borrowers, and how to get rid of one.

What Is an MCA UCC Lien?

UCC is short for the Uniform Commercial Code, a set of laws that helps regulate business transactions in a uniform manner.

A UCC lien filing, which may also be referred to as a UCC lien or a UCC-1, is a financing statement that creditors can file with the secretary of state when borrowers take out a business loan.

Essentially, the UCC filing states that the lender has placed a lien against one or more of your business assets. For instance, if you’ve taken out an equipment loan, it’ll typically be a specific collateral lien against the piece of equipment you used to secure the loan.

In cases where you’ve taken out an unsecured loan or a merchant cash advance, the lender may use a blanket UCC filing or blanket lien, which places a lien on all of your company’s assets. This could include income streams and future receivables.

In either case, the lien placed on your assets can be used to seize those assets to satisfy the debt. In addition to that, many lenders (including merchant cash advance companies) will usually also require a personal guarantee so that you’ll be personally liable for the debt if your business can’t repay it.

How a UCC Lien Can Impact You

UCC liens are commonplace in commercial lending, so don’t be surprised if you find one on your business credit reports after taking out a merchant cash advance or any other type of business financing.

The UCC filing isn’t an indicator that you’ve done anything wrong, so it won’t directly impact your business credit scores. However, if you want to obtain credit again in the future, lenders may balk at approving your application. This is especially true if you have a blanket UCC filing.

This is because your existing creditor has indicated that they can lay claim to one or more of your assets if you can’t pay your bills. If it’s just one asset for an equipment loan or other type of funding, it just means you can’t use that asset to secure another loan as long as the original loan is still outstanding.

But if you have a blanket UCC filing, the new creditor will have subordinate status. In other words, if you default on your debts, the lender with the first UCC lien will have first dibs on your assets. If there’s nothing left over after that, subsequent lenders may not get repaid.

So while UCC liens won’t hurt your credit scores directly, they can impact your overall creditworthiness.

Finally, if you can’t repay a merchant cash advance, the MCA provider may go so far as contacting your existing customers and demanding payment from them for the goods or services you’ve provided. This is because your customers have essentially purchased your future accounts receivable, so their future payments to you are considered an asset for purposes of the UCC lien.

If this happens, it could significantly damage your relationship with your customers and make it challenging to continue to do business.

Why You Should Review MCA UCC Liens

You’re unlikely to get rid of a legitimate UCC filing until you’ve paid off the underlying debt. But in some cases, the information listed in the filing may be incorrect. If this happens, it could hurt your business.

Here are some things you can check for when you review your business credit reports:

  • Did the MCA provider report the correct dollar amount of the advance?
  • Did the MCA lender clearly state which assets it’s using in its lien?
  • How specific is the collateral detailed in the filing?
  • Does the filing include pertinent details about your arrangement?

If you find that the filing is inaccurate, you can dispute the information with the secretary of state in the state you reside. That said, you may try to contact the MCA provider first to see if they’ll change it on their own. But if not, you have regulators to help protect you and your business. You can also contact an attorney that regularly resolves business debt.

How to Get Rid of an MCA UCC Lien

In most cases, UCC-1 filings are removed as soon as the borrower has repaid the debt. However, an MCA UCC lien can stay on your business credit reports, even after you’ve satisfied the debt.

If this happens, you have some options:

  • Contact the lender: If the lender hasn’t submitted its request to the secretary of state to remove your UCC filing, you can contact the MCA provider and ask that it submit a UCC-3 statement, which can be used to amend or terminate an existing UCC-1 filing.
  • Contact the secretary of state: If your MCA provider is unresponsive or doesn’t process your request in a timely manner, you can visit your local secretary of state office and swear under oath that you’ve satisfied the debt. You may also be asked to provide documentation to that effect.

If the MCA UCC lien is on your business credit report and you’re still making payments, you can get rid of it by refinancing the debt with another lender. However, the new lender may place its own lien on your assets, so it may not make a difference in terms of your ability to get credit again in the future.

When to Consider Hiring an Attorney

In many situations where something goes wrong with a UCC lien, you can contact your local secretary of state to get the assistance you need. However, as a business owner, you already have a lot on your plate, and UCC liens can be a big headache. If you don’t have the time to promptly deal with your MCA provider or the secretary of state, an attorney can help.

An attorney can also be worth considering if you’ve defaulted on your MCA and the provider is contacting your customers for payment. In the event of a default, an attorney can also help you navigate the process and even negotiate a settlement to pay less than what you owe.

If you’re not sure whether your situation merits hiring an attorney, consider a free consultation to get the information you need to make that decision.

The Bottom Line

Merchant cash advances are one of the most expensive forms of business financing. Adding a blanket UCC filing to your credit reports can also make it difficult to get more affordable financing options in the future.

If you have an MCA UCC lien on your business credit reports, you’ll need to pay off or refinance the debt to get rid of it. But in some cases, you may need to take further steps to remove the UCC lien from your credit report.

There may also be cases where you need to dispute the lien or enlist the help of an attorney to protect your business from an MCA provider.

The important thing is that you think carefully before doing business with a merchant cash advance provider and make sure the UCC lien process goes smoothly from start to finish to avoid additional problems. If you’re struggling with an MCA UCC lien, call Tayne Law Group today at (866) 890-7337, or fill out our short contact form, and we’ll respond as soon as possible. We’ve been in the debt relief business for over twenty years and, in that time, we have won countless awards for our service. Rest assured, our experience speaks for itself.

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