UCC filings are common practice, especially among small business lenders and merchant cash advance providers. This document establishes a lender’s legal interest in collateral used to secure a business loan. A UCC lien can help your business qualify for financing, but it can present some challenges, too. So it’s important to know how to remove a UCC filing once you qualify to do so.
Read on to learn how a UCC filing impacts you and how to get it removed.
What Is a UCC Filing?
UCC stands for Uniform Commercial Code, a set of laws surrounding commercial transactions in the United States. A UCC filing refers to a legal notice that a lender files with the appropriate jurisdiction to secure interest in the business personal property being used as collateral for a loan.
Purpose of UCC Filings
When a business takes out a loan, the lender often requires some form of collateral to secure the loan. If the borrower fails to repay, the lender can seize the collateral to recoup the lost funds. This collateral could include assets like equipment, inventory, or accounts receivable.
Filing a UCC-1 financing statement “perfects” the lender’s interest in the collateral, making it a matter of public record. If the borrower defaults on the loan, the lender has a legally recognized priority claim to the collateral over other creditors.
Once the loan is paid off, the lender should file a UCC-3 termination statement. This removes the UCC lien and indicates that the lender no longer has an interest in the collateral.
Types of UCC Filings
There are generally two types of UCC filings that a lender might file: a UCC lien on specific collateral or a blanket lien.
UCC Filing for Specific Collateral
This filing identifies a specific asset or group of assets pledged as collateral. That could include equipment, machinery, vehicles, certain inventory, or other specifically identified property. This filing is often used when the loan is directly related to acquiring or using the particular collateral. Since this type of lien is restricted to specific assets, it gives your business more flexibility.
UCC Filing for Blanket Lien
This filing creates a lien over nearly all of your assets. It is a broader claim that doesn’t limit the collateral to specific items. It can include all personal property such as equipment, inventory, accounts receivable, and other general assets.
Blanket liens are common with general business loans and merchant cash advances, where the creditor wants to secure a broad range of assets to mitigate risk. They can limit your business’s flexibility in managing, selling, or otherwise dealing with assets. They could also affect your ability to get additional financing.
How a UCC Filing Can Impact Your Business
UCC filings are a common part of doing business. They serve a legitimate purpose in protecting creditors. But they can have a broad range of effects on a business, both positive and negative.
Access to Additional Financing
If there’s a UCC filing against your business’s assets, you could be limited in securing more financing in the future. Other potential lenders might be reluctant to lend you money if there is already a secured creditor. Or they may insist on subordinated status (when more than one lender is interested in the same collateral), leading to less favorable loan terms.
Asset Sales and Transfers
The assets under a UCC lien typically can’t be sold or transferred without the creditor’s consent. This can limit your business’s flexibility to leverage or dispose of those assets as needed.
Credit Ratings and Business Reputation
UCC filings are public records, meaning anyone — including competitors, customers, and suppliers — can see them. This could lead to worries of financial instability, even if the borrowing was done for positive reasons like growing the business.
Further, suppose you have a blanket lien from a merchant cash advance and fall behind on payments. In that case, the MCA funder may contact your existing customers and demand payment from them directly. 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 cause major damage to your business relationships and make it challenging to continue doing business.
Risk of Losing Asset(s)
If your business defaults on the loan, the creditor has the right to seize the assets listed in the UCC filing to satisfy the debt. This can lead to operational challenges, especially if those assets are essential for daily operations.
Restrictions on Business Operations
Sometimes, the agreements associated with UCC filings might include restrictive covenants that limit certain business actions (such as taking on additional debt, making certain expenditures, etc[5] .) without the lender’s consent. This can restrict your business’s ability to operate or grow in the way you planned.
The companies are responsible for merchant cash advances (MCAs) put a lien on a business’s future receivables through a blanket UCC lien. This action results in a lien being placed on the business’ various assets, which can include:
- Receivables
- Equipment
- Vehicles
- Securities
- Property
- Letters of Credit
When Can You Remove a UCC Filing?
A UCC filing (specifically a UCC-1 financing statement) can be removed or terminated under several circumstances:
- Satisfaction of obligation. The most common reason for removing a UCC filing is the satisfaction of the underlying debt. When you have paid off the loan, the secured creditor should terminate the UCC filing.
- Expiration. If no action is taken, a UCC-1 financing statement will generally expire five years after its filing date. However, a creditor can extend a UCC-1 by filing a continuation statement (UCC-3) before the initial expiration date.
- Release of collateral. When the underlying obligation hasn’t been fully satisfied, but a specific piece of collateral is no longer deemed necessary by the creditor, a partial release can be filed. This doesn’t remove the UCC filing altogether but indicates that certain collateral is no longer restricted.
- Inaccurate filings. You can demand removal if a UCC-1 was filed incorrectly or without proper cause. If the creditor doesn’t comply, you may have legal grounds to pursue the removal and possibly even seek damages if the wrongful filing caused harm to your business.
- Bankruptcy. Depending on the specifics of a bankruptcy case, UCC liens may be affected or altered by the proceedings. This is a complex area, and the bankruptcy court would determine the exact impact on a UCC lien.
- Negotiation or restructuring. In some cases, you might negotiate new terms or restructure an existing obligation with the creditor. This could lead to the removal or amendment of the original UCC-1 filing.
How to Remove a UCC Filing
Suppose a UCC-1 filing is affecting your business and you believe it should be terminated. In that case, it’s a good idea to contact the creditor right away and discuss the status of the filing and the underlying obligation. Double-check the agreement associated with the UCC filing to understand the terms for removal.
If there are disputes or complications surrounding the UCC filing, it’s a good idea to consult with an attorney with experience in this area of business law. And remember that a proactive approach is essential — if a UCC filing remains on record after your debt was satisfied, it can continue to affect your business’s ability to secure additional financing or complete certain transactions.
Steps for Removing a UCC Filing
- Fulfill the obligation. Before a UCC lien can be removed, the underlying debt (like loan repayment) generally must be satisfied.
- Request termination. Once the debt is paid off, you should request that the creditor (secured party) file a UCC-3 termination statement with the appropriate filing office (typically the Secretary of State or a similar state agency where the original UCC-1 was filed). This statement serves to terminate the lien and indicates that the secured party no longer has a claim on the assets related to that filing.
- Check for accuracy. Ensure the UCC-3 termination statement has the right information, including the initial UCC-1 filing number, your or your business’ name, and other details.
- Keep proof. Once the termination is accepted, keep a copy of the filed UCC-3 termination and any confirmation from the filing office.
- Monitor UCC searches. After a reasonable time has passed, you might want to perform a UCC search on your business to ensure that the terminated lien no longer appears. This can be especially important if you’re seeking new financing.
- Address erroneous filings. If a UCC-1 was filed in error or you believe it was wrongfully filed, contact the secured party to address the issue. If they don’t cooperate, you might need to take legal action or file a UCC-5 Information Statement to indicate a dispute regarding the accuracy or validity of the UCC filing.
- Remember the expiration date. If no action is taken by the secured party, a UCC-1 financing statement will generally expire five years after its filing date.
Do You Need Legal Help for a UCC Lien?
Again, if you need advice on any steps or help with removing a UCC filing, consult with a legal professional experienced in business law in your jurisdiction.
A UCC filing on your credit reports can make it difficult to get more affordable financing options in the future, especially if you have a blanket lien from an MCA provider.
You must pay off or refinance the debt to eliminate the UCC filing. But in some cases, you may need to take further steps to remove the UCC lien from your credit report. In some cases, you might need to dispute the lien or enlist the help of an attorney to protect your business.
So if you need help with a UCC filing, call Tayne Law Group at (866) 890-7337 or fill out our short contact form, and we’ll get back to you right away. We’ve been helping businesses resolve their debt for over 20 years, and our law firm has won countless awards for our service. All conversations are confidential, and we never share or sell your information.
