Discovering a Uniform Commercial Code (UCC) lien on your business can be alarming, especially when you’re trying to secure new financing. The good news is that a UCC lien doesn’t automatically prevent you from getting a business loan.
But it does make traditional financing more difficult, though how much it affects you depends on the type of lien, the lender’s policies, and your current debt obligations. Here’s what you need to know.
What Is a UCC Lien and How Does It Work?
A UCC lien is a legal claim a creditor places on a business’s assets to secure a debt. It’s established through a UCC-1 financing statement, which the creditor files with the Secretary of State in the business’s home state. The filing becomes part of the public record, meaning any potential lender can see it during a credit review.
These filings are common in many types of commercial transactions, including:
- Merchant cash advances (MCAs)
- Equipment financing
- Business term loans
- Business lines of credit
- Inventory loans and accounts receivable financing
In all these cases, the creditor uses a UCC lien to protect their financial interest. If the borrower defaults, the creditor has the legal right to claim the assets listed in the lien.
Which Assets Can Be Subject to a UCC Lien?
A UCC lien can secure nearly any type of business property that isn’t real estate, including:
- Machinery and equipment
- Inventory
- Accounts receivable
- Bank accounts
- Office equipment and fixtures
- Intellectual property
- General business assets
It’s important to note that there are two main types of UCC liens, including specific-asset liens and blanket liens. Specific-asset liens cover a particular piece of collateral, such as a forklift, delivery truck, or piece of manufacturing equipment, while a blanket lien covers all (or nearly all) business assets.
Lien priority matters as well. The first creditor to file a UCC-1 generally has first claim to the assets. This makes other lenders hesitant to come second in line.
How UCC Liens Impact Your Ability to Get Financing
When a new lender reviews your business for a loan, an existing UCC lien raises immediate concerns for a few reasons:
- Reduced collateral: The existing lienholder already has a legal claim on your assets, leaving less collateral available for a new loan.
- Higher perceived risk: A lien signals that you already owe money, which may suggest financial strain.
- Priority issues: If you default, the prior lienholder collects first, creating default risk for the new lender.
- Potential legal complications: Some lenders simply avoid businesses with active liens because it adds complexity to the lending process.
A UCC lien will show up on your business credit report, but it doesn’t directly affect your credit scores unless you default on your obligations. Even so, a UCC lien can still result in less favorable terms, such as higher interest rates and fees, lower loan amounts, or stricter eligibility criteria.
Types of Financing Most Affected by UCC Liens
Because UCC liens involve collateral, they especially impact credit products that require you to use business assets as collateral. In particular, that can include:
- Equipment financing
- Working capital loans
- Business lines of credit
- Inventory financing
- Accounts receivable financing
Can You Get Business Financing with a UCC Lien?
It’s absolutely possible to obtain financing for your business with an active UCC lien, though your options may be limited. More specifically, you may still qualify for new financing if:
- The lien is on specific assets unrelated to the new loan.
- You have sufficient unencumbered assets.
- Your company has a strong business performance and cash flow.
- The new lender is willing to subordinate to the existing lien.
If you have an active UCC lien on your business credit reports, some potential options to consider include:
- Lenders who specialize in businesses with existing liens: These lenders accept second-position liens or work around existing collateral obligations, though typically at higher interest rates.
- Personal loans or personal guarantees: You use your personal credit and assets instead of business assets to secure financing, keeping business collateral separate from the loan.
- Alternative financing: Options like invoice factoring and revenue-based loans may not require traditional collateral because they’re based on your future revenues or accounts receivable rather than physical business assets.
- Negotiating lien subordination with existing creditor: You can ask your current lender to accept a lower-priority claim on your collateral, allowing a new lender to take first position and approve your loan.
How to Remove or Work Around a UCC Lien
A UCC lien can feel like a roadblock, but there are practical ways to address it. Depending on the type of lien, your relationship with the creditor and your financial situation, you may have several paths forward.
The key is understanding your options and taking the right steps before a denied loan application disrupts your business operations.
Satisfy and Terminate the UCC Lien
The most direct path is to satisfy the debt tied to the lien. Once the obligation is resolved, the creditor is required to remove their claim. Start by paying off the underlying debt in full, then requesting a UCC-3 termination statement from the lender. You can then verify with your Secretary of State’s office that it’s been filed.
If the debt is fully paid and the creditor is responsive, they can file a UCC-3 termination within a few days, and the Secretary of State usually updates public records shortly after. But if the creditor is slow to respond—or if you’re negotiating a settlement, subordination, or partial release—the process can take longer.
Negotiate with the Lienholder
If paying off the debt immediately isn’t realistic, negotiation is another viable route. Many creditors, including MCA companies, are open to modifying or releasing liens when approached strategically. Depending on your situation, you may be able to negotiate:
- A partial settlement to release the lien entirely.
- A subordination agreement allowing a new lender to take first position.
- A restructured payment plan that reduces the lien’s impact.
- A release of specific assets from a blanket lien so you can use them as collateral.
Keep in mind that these negotiations can be sensitive, and creditors may push terms that aren’t in your best interest. Working with an attorney ensures the agreement is enforceable, clearly documented, and structured to protect your business long-term.
Common Mistakes to Avoid
Business owners dealing with UCC liens often feel rushed or overwhelmed, which can lead to avoidable missteps. In particular, here are some common mistakes to avoid:
- Ignoring the lien: Hoping a lender won’t notice rarely works because UCC filings are public records that lenders review during the underwriting process.
- Taking on more high-interest debt: Using costly financing to pay off existing obligations can make cash-flow problems worse and deepen the debt cycle.
- Not confirming lien removal: Even after payoff, liens don’t always get terminated automatically, so failing to check public records can stall future financing.
- Overlooking fine print in agreements: Missing key terms in an MCA or loan agreement can limit your ability to borrow again or release specific assets later.
When to Seek Legal Help for UCC Lien Issues
Consider consulting a business debt attorney if you’re facing liens from merchant cash advances that block new financing, multiple UCC liens creating unsustainable debt, or aggressive collection tactics from lienholders. Legal help is also valuable when negotiating lien subordination or settlement agreements with creditors.
If you need help resolving a UCC filing or a lien that’s blocking your access to funding, contact Tayne Law Group at (866) 890-7337 or complete our short online form. Our team has spent more than 20 years helping businesses resolve debt issues, litigate MCA matters, remove problematic liens and regain financial stability. All consultations are confidential, and your information is never shared or sold.
