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. So you might be wondering: What to do if MCA lender files a UCC lien against you?
A UCC-1 lien could impact your business if you fail to repay the MCA. So 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 help uniformly regulate business transactions.
A UCC lien filing, also referred to as a UCC lien or a UCC-1 lien, is a financing statement that creditors can file with the secretary of state when borrowers take out a small 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 lenders) will usually also require a personal guarantee so that you’ll be personally liable for the debt if your business can’t repay it.
Types of UCC-1 Filing
There are several types of UCC-1 filings, which can vary based on the nature of the collateral or the secured transaction. Here are the primary types:
- Blanket UCC-1 Filing: This type of filing is broad and covers all assets. It’s commonly used in situations where a loan is secured by the debtor’s entire business, including inventory, equipment, and accounts receivable.
- Specific Collateral UCC-1 Filing: Unlike the blanket filing, a specific collateral filing pertains only to particular items or categories of property.
- PMSI (Purchase Money Security Interest) UCC-1 Filing: This is a special type of UCC-1 filing that gives the creditor a super-priority interest in the collateral. These are typically goods that the debtor purchased with the funds provided by the creditor. This is often seen in financing agreements for the purchase of equipment or vehicles.
- Inventory and Accounts Receivable UCC-1 Filing: This specific type targets the debtor’s inventory and accounts receivable as collateral. It’s frequently used by lenders in industries where inventory turnover and accounts receivable are significant assets, such as retail or wholesale.
- Fixture UCC-1 Filing: This applies when the collateral is a fixture, meaning personal property that is permanently attached to real property, such as a building or land. The filing is often recorded in the same place as a mortgage or deed of trust to notify potential creditors and purchasers of the real property about the secured interest in the fixtures.
- Agricultural Liens UCC-1 Filing: Specifically for agricultural financing, this filing secures interest in farm products, including crops and livestock, as well as federally subsidized farm loans.
On What Assets Can Lenders Impose Liens?
Lenders can impose liens on a wide range of assets. Some of the most common include:
- Real Property: This includes land and anything permanently attached to it, such as buildings or homes.
- Personal Property: This category covers a broad array of non-real estate assets. There is tangible personal property, which are items you can physically touch (vehicles, equipment, inventory, furniture, etc.), as well as intangible personal property, which are assets that represent a value but don’t have a physical form (stocks, bonds, accounts receivable, patents, etc.).
- Vehicles: Cars, trucks, motorcycles, boats, and other vehicles can have liens placed on them.
- Equipment and machinery: This is common in business lending, especially with companies that require expensive equipment or machinery to operate.
- Inventory: For businesses that hold inventory, a lien can be placed on these goods as collateral to secure a loan.
- Accounts receivable: These are the funds owed to a business by its customers for goods or services delivered on credit.
- Securities: Stocks, bonds, and other securities can have liens placed against them as well.
How a UCC Lien Can Impact Your Business
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 a merchant cash advance 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 promptly, 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.
Challenge any Erroneous Details Present on Your Business Credit Report
It’s possible that you had a UCC-1 lien in the past that we supposed to be removed, but is still showing up on your business credit reports. If that’s the case, review your business credit reports from agencies like Dun & Bradstreet, Experian, and Equifax to ensure that the lien release is reflected accurately. If the UCC-1 lien still appears, you may need to contact the credit bureaus directly to dispute the information.
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 deal promptly 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 unsure 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 to think carefully before doing business with a merchant cash advance company 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, our law firm has won countless awards for our service. Rest assured, our experience speaks for itself.
Frequently Asked Questions
A UCC-1 lien is a serious matter in business financing, though it’s not necessarily a negative thing. It does affect a company’s ability to use its assets freely and can impact its credit rating.
A UCC-1 lien itself doesn’t directly give a creditor the authority to freeze your personal bank account. UCC-1 liens are typically filed to perfect a security interest in a debtor’s business assets as collateral for a loan. This means if they default, the creditor may be able to seize the collateral to satisfy the debt.
To negotiate with an MCA provider, it’s advised you work with an experienced MCA attorney. It requires time, patience, and strong negotiation skills. An attorney can help you secure a revised payment plan or settlement to relieve you of your MCA debt.
