Quick Summary: A UCC lien gives creditors a legal claim to your business assets if you default on a loan or merchant cash advance. While UCC filings are standard practice, they can block future financing and, if you default, allow creditors to seize assets or intercept payments from your customers. A UCC attorney can help you dispute incorrect filings, negotiate with creditors, remove liens after payoff, or protect your business if you’re facing collection actions.
What Is a UCC Lien?
A UCC lien is a legal filing that gives a creditor the right to seize specific business assets if you fail to repay a debt. The filing is made with your state’s Secretary of State under the Uniform Commercial Code (UCC), a standardized set of rules governing commercial transactions adopted by all 50 states.
When you take out a business loan, lease equipment, or receive a merchant cash advance, the lender often files a UCC-1 financing statement to secure their interest. This public record announces that the creditor has a claim against your assets until the debt is satisfied.
There are two main types of UCC liens:
Specific asset liens: Cover particular collateral like equipment, inventory, or vehicles you purchased with the loan funds.
Blanket liens: Cover all current and future business assets, including accounts receivable, equipment, inventory, and intellectual property. MCA providers typically use blanket liens because they provide broader protection, and give them more leverage if you default.
What Are the Different Types of UCC Filings?
The UCC-1 is the most common filing, but several other forms serve specific purposes:
| Filing | Purpose | When It’s Used |
|---|---|---|
| UCC-1 | Financing statement | Establishes creditor’s security interest in collateral |
| UCC-3 | Amendment | Continues, assigns, terminates, or modifies a UCC-1 |
| UCC-5 | Information statement | Disputes a wrongly filed or amended UCC-1 |
| UCC-11 | Search request | Requests information on existing liens against a debtor |
The UCC-3 is particularly important if you’ve paid off your debt ,it’s the form used to terminate a lien. If a creditor fails to file a termination after you’ve satisfied the debt, you may need to file a UCC-3 yourself or have an attorney intervene.
How Does a UCC Lien Affect Your Business?
A UCC lien doesn’t mean you’ve done anything wrong; it’s standard practice for secured business financing. However, it creates real challenges:
Limits future borrowing: Lenders check for existing UCC filings before extending credit. The first creditor to file has priority over your assets, so subsequent lenders face higher risk. Many won’t lend to a business with an existing blanket lien, effectively blocking you from additional financing when you need it most.
Stays on your record for 5 years: UCC filings appear on business credit reports for five years and show their status, including any defaults or disputes. While the filing itself doesn’t hurt your credit score, defaulting on the underlying debt will.
Puts your assets at risk: If you can’t make payments, the creditor can seize the collateral specified in the lien. With a blanket lien, that could mean equipment, inventory, bank accounts, and accounts receivable, essentially everything your business owns.
What Happens If You Default on an MCA With a UCC Lien?
MCA providers almost always file blanket UCC liens, which gives them significant power if you fall behind on payments. Default can trigger several aggressive collection actions:
Asset seizure: The creditor can claim any business property covered by the lien, equipment, inventory, vehicles, even funds in your bank account.
Accounts receivable interception: With a blanket lien covering future receivables, the MCA provider can contact your customers and vendors directly, instructing them to send payments to the creditor instead of you. This can damage client relationships and your reputation in your industry.
Confession of judgment: Some MCA contracts include a confession of judgment (COJ) that allows the creditor to obtain a court judgment against you without notice or a trial. New York banned COJs for out-of-state borrowers in 2019, but many businesses signed contracts before the ban or are subject to other states’ laws.
The combination of a blanket UCC lien and aggressive MCA collection tactics can quickly cripple a business that’s already struggling with cash flow.
How Do You Remove a UCC Lien?
There are three ways to get a UCC lien removed:
Pay off the debt: Once you’ve satisfied the obligation in full, the creditor is required to file a UCC-3 termination statement within 20 days of your written request. If they don’t, you can file the termination yourself.
Wait for expiration: UCC filings automatically expire after five years unless the creditor files a continuation. Many creditors don’t bother to terminate liens and simply let them lapse, but five years is a long time to have a lien blocking your access to financing.
Challenge the filing: If a UCC lien was filed incorrectly, fraudulently, or without proper authorization, you can dispute it. This typically requires legal assistance to navigate the process and negotiate with the creditor.
When Should You Hire a UCC Attorney?
A UCC attorney can help in several situations where the stakes are high or the legal issues are complex:
The lien is incorrect or fraudulent: If a creditor filed a UCC lien without proper authorization, for the wrong amount, or against assets not covered by your agreement, an attorney can help you dispute and remove it.
You’ve paid off the debt but the lien remains: Creditors are legally required to terminate liens after payoff, but some don’t. An attorney can compel removal and pursue damages if the creditor’s failure to terminate has harmed your business.
You’re facing default or collection actions: If an MCA provider is threatening to seize assets or contact your customers, an attorney can negotiate on your behalf, potentially settling for less than you owe or restructuring payment terms.
You need to protect future financing options: An attorney can advise on how to structure your debts to minimize the impact of UCC liens on your ability to borrow in the future.
You’re reviewing a new financing agreement: Before signing an MCA or business loan with a UCC lien provision, an attorney can explain exactly what you’re agreeing to and identify problematic terms like blanket liens or confessions of judgment.
What Can a UCC Attorney Do for Your Business?
A UCC attorney provides legal expertise that can protect your business in several ways:
Dispute and remove improper liens: Attorneys can file UCC-5 information statements, negotiate directly with creditors, or take legal action to remove liens that shouldn’t exist.
Negotiate with creditors: When you’re struggling to make payments, an attorney can negotiate settlements, payment restructuring, or lien releases, often achieving better terms than you could get on your own.
Stop aggressive collection tactics: If an MCA provider is contacting your customers or threatening asset seizure, an attorney can intervene, assert your rights, and potentially halt improper collection actions.
Represent you in litigation: If a creditor sues to enforce a lien or you need to challenge a confession of judgment, you’ll need legal representation to protect your interests in court.
Review and advise on contracts: Before you sign a financing agreement, an attorney can identify problematic provisions and help you understand the full implications of any UCC lien you’re agreeing to.
Get Help With UCC Liens
UCC liens are standard practice, but they can create serious problems, especially if you’re dealing with aggressive MCA providers, facing default, or trying to secure new financing. Whether you need to dispute an improper filing, remove a lien after payoff, or negotiate with creditors, a UCC attorney can protect your business interests.
Tayne Law Group has over two decades of experience helping business owners navigate debt issues, including UCC lien disputes and MCA debt. Contact us at (866) 890-7337 or fill out our short contact form for a free, confidential consultation. We’ll review your situation and explain your options, with no obligation.
Frequently Asked Questions
How do I check if there’s a UCC lien on my business?
Most states allow you to search for UCC filings online through the Secretary of State’s website where your business is registered. Search by your business name or EIN. If you can’t find the information online, contact the Secretary of State’s office directly.
What’s the difference between a UCC lien and other types of liens?
UCC liens specifically secure commercial transactions involving personal property (equipment, inventory, receivables). Other liens, such as tax liens, mechanic’s liens, or judgment liens, arise from different circumstances, such as unpaid taxes, services, or court judgments. UCC liens are voluntary (you agree to them when you sign a financing agreement), while other liens can be imposed without your consent.
Can a UCC lien affect my personal assets?
A UCC lien filed against your business typically covers business assets only. However, if you signed a personal guarantee on the underlying debt, the creditor can pursue your personal assets separately if your business defaults, regardless of what the UCC lien covers.
How long does it take to remove a UCC lien?
If you’ve paid off the debt, the creditor must file a termination statement within 20 days of your written request. If they fail to do so, you can file a UCC-3 termination yourself. Disputed liens take longer, weeks to months, depending on whether negotiation or litigation is required.
What happens if a creditor won’t remove a lien after I’ve paid?
You can file a UCC-3 termination statement yourself after the 20-day deadline passes. You may also have grounds to sue the creditor for damages if their failure to terminate has harmed your ability to obtain financing or conduct business. An attorney can advise on your options.
