Please ensure Javascript is enabled for purposes of website accessibility

UCC Lien Enforcement: Key Insights For MCA Borrowers

Table of Contents

Running a business often requires quick access to capital, and merchant cash advances (MCAs) have become a popular solution for many business owners. But there’s an important aspect of MCAs that many business owners overlook: the UCC lien.

First phone
consultation is always free.

You might have seen the term “UCC lien” buried in your financing agreement or heard it mentioned by your lender, but what does it actually mean for your business? 

Read on to learn how UCC liens work and what every business owner needs to know to avoid surprises. Whether you’re considering an MCA or already have one in place, understanding UCC liens can help you protect your assets, navigate financial decisions, and keep your business running smoothly. 

Understanding UCC Liens

As a business owner, it’s important to understand what UCC liens are and how they work.

Definition and Purpose of UCC Liens

A UCC lien (short for a Uniform Commercial Code lien) is a legal claim filed by a lender or creditor against a borrower’s assets to secure a loan. This filing is governed by the Uniform Commercial Code — a set of laws adopted by most U.S. states that apply to commercial transactions. 

The main purpose of a UCC lien is to establish a creditor’s priority in case the borrower defaults or files for bankruptcy. By filing a UCC lien, creditors protect their financial interests and let other potential lenders know about their claim on the borrower’s assets.

UCC liens usually apply to secured financing, where the borrower offers up collateral in case they’re unable to repay what they owe. Common examples include small business loans, equipment leases, and merchant cash advances (MCAs). Once a UCC lien is filed, it becomes a public record, allowing other creditors to see existing claims against the borrower’s assets.

Types of Collateral in UCC Liens

UCC liens can cover a wide range of collateral, which are generally classified into two main categories: specific collateral and blanket liens.

Specific Collateral

With this type of UCC lien, the creditor secures an interest in a specific asset or set of assets. Examples include:

  • Equipment: Machinery, vehicles, or tools purchased using loan funds.
  • Inventory: Goods or products held for sale.
  • Accounts Receivable: Outstanding customer invoices used as collateral.

Blanket Liens

A blanket lien provides the creditor with a security interest in all assets owned by the borrower. This includes tangible assets like equipment and inventory, as well as intangible assets like accounts receivable and intellectual property. Blanket liens are commonly used in general-purpose business loans or lines of credit and provide the lender with maximum protection in the event of default.

How UCC Liens Affect Business Operations

UCC liens are a standard part of business financing. That said, they can significantly impact your daily operations and future financial decisions.

  1. Access to additional financing: A UCC lien can make it challenging for a business to secure additional loans, as other lenders may be reluctant to extend credit if existing liens are in place. 
  2. Asset restrictions: A lien on specific assets may limit a business’s ability to sell or transfer those assets without the creditor’s approval. For example, if a company secures a loan with its equipment, it may need the lender’s consent to sell or replace that equipment.
  3. Impact on credit: UCC liens appear on a company’s credit report and can influence how potential lenders and partners perceive the business’s financial health. A high number of liens or blanket liens may raise red flags.

UCC Liens in the Context of Merchant Cash Advances

UCC liens are commonly used in merchant cash advances to secure the financing provided to the business. 

With an MCA, a business receives a lump sum of money in exchange for a percentage of its future credit card or sales revenue. The MCA provider uses a UCC lien to secure their interest in the business’s assets, ensuring that they’re paid back one way or another; it gives the MCA provider legal recourse to recover their funds if the business fails to meet its repayment obligations.

Most MCA providers file blanket liens rather than liens on specific assets. A blanket lien covers all assets of the business, such as equipment, inventory, accounts receivable, and even future sales revenue. This broad coverage ensures that the provider has multiple avenues to recover funds in case of default, especially since MCAs are unsecured.

Enforcement of UCC Liens

UCC liens are triggered when a borrower defaults on their financing agreement. Default typically happens when the borrower fails to make payments as agreed, breaches the loan contract, or files for bankruptcy.

Before enforcing the lien, however, the creditor usually notifies the borrower of the default and their intent to take action. That might include sending a notice of default outlining the missed payments, and offering an opportunity for the borrower to resolve the situation.

Once the creditor determines that default has occurred and the lien is enforceable, they may take possession of the collateral. The process depends on the type of collateral and the terms of the lien:

  • Self-help repossession: For movable assets (like equipment, vehicles, or inventory), the creditor may repossess the collateral without court involvement, provided they adhere to the applicable laws.
  • Court-ordered repossession: For more complex cases, or if the debtor disputes the default, the creditor may need to file a lawsuit and obtain a court order to seize the collateral.

Once the collateral is repossessed, the creditor can sell it to recover the debt. The sale must follow certain rules under Article 9 of the UCC:

  • The creditor must provide the debtor with reasonable notice of the sale, including the time, date, and location.
  • The sale must be conducted in a commercially reasonable manner, whether public or private.
  • The proceeds from the sale are used to pay off the debt, with any surplus (if applicable) returned to the debtor. If the proceeds are insufficient, the creditor may pursue the debtor for the remaining balance.

For non-tangible assets like accounts receivable or intellectual property, the creditor may notify customers to direct their payments to the creditor instead of the business.

If the borrower files for bankruptcy, the enforcement of the UCC lien is subject to bankruptcy proceedings. The creditor’s priority is determined by the lien’s filing date and other creditors’ claims. The court oversees how collateral is liquidated and distributed among creditors.

Debtor’s Perspective

If you’re dealing with a UCC lien filed by an MCA provider, it’s important to understand your rights and how to proceed. 

Rights of the Debtor

As the debtor, you have several rights when facing a UCC lien:

  1. Right to notification: You must be notified of the filing of a UCC lien and any enforcement actions, such as repossession or sale of collateral. If the creditor plans to sell the collateral, you’re entitled to reasonable notice of the time, date, and manner of the sale.
  2. Right to cure default: Many financing agreements allow the borrower to cure the default by repaying overdue amounts or resolving breaches before enforcement begins.
  3. Right to contest: Debtors can challenge the validity of a UCC lien if they believe it is incorrect, fraudulent, or if the creditor violates the terms of the agreement or the law. Filing a UCC-5 Correction Statement can address errors or fraudulent liens.
  4. Right to receive surplus: After the sale of collateral, if the proceeds exceed the amount owed, you’re entitled to the surplus funds.
  5. Right to commercial reasonableness: The sale of collateral must be conducted in a commercially reasonable manner. You can challenge the sale if this standard is not met.

Strategies for Dealing with UCC Lien Enforcement

There are different steps you can take to deal with a UCC lien that’s being enforced, depending on the situation:

  • Negotiate with creditors: Reach out the creditor to explore repayment plans, loan restructuring, or settlement options. Creditors might agree to modify terms to avoid the expense of enforcement.
  • Cure the default: If possible, resolve the default by catching up on payments before enforcement escalates.
  • File a UCC-5 statement: If you believe the lien is invalid or fraudulent, file a correction statement to dispute the lien’s validity.
  • Hire Legal Counsel: Hire an attorney to help negotiate with creditors, challenge improper liens, or navigate enforcement actions.

Reach Out to Tayne Law for Help With MCA UCC Liens

When doing business with a merchant cash advance company, it’s important to tread carefully 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 speak with an experienced attorney about your MCA and business debt matters to find out how we may be able to help. 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 services and expertise. You can rest assured that your call will never be outsourced to a third party, and we will never share or sell your information.

Money moves to help you stay on track

Sign up for monthly updates, articles, money advice, and timely topics to keep your finances on track.

Subscribe to our newsletter! 🚀

Related Posts

Debt Settlement Company for Your Merchant Cash Advance Made Things Worse? Here’s What to Do

You turned to a debt settlement company hoping for relief from your merchant cash advance (MCA) debt. But instead, the situation has only gotten worse. Now, you’re facing aggressive collection tactics, mounting fees, and a financial crisis that threatens your business.  First phone consultation is always free. Call Tayne Book Online Unfortunately, this is a […]

Read Now

What is debt relief?

Debt relief is an umbrella term representing many solutions that may lower your debt.
What kind of debt do you have?

Need other debt help?

If you’re dealing with a lawsuit, judgment, frozen bank account, notice of wage garnishment, lien, or simply feel out of control of your debt–you are not alone. Give us a call or schedule a free consultation. We’ll help you understand what’s going on and find the best possible debt solution.

Why people choose Tayne Law

A debt relief law firm

Profile-3-scaled.webp

Personalized
Program

Every situation is unique. We’ll work with you to find a solution that resolves your debt and frees up your cash flow.

bank-1-scaled.webp

No-billing
Policy

You make one low monthly payment and will never get an unexpected bill.

Certify-2-scaled.webp

Experienced NY Debt Attorneys

We have more than 20+ years of experience providing clients with debt relief.

Handss-2-scaled.webp

Work with
Creditors

We work with all creditors, whether you’re dealing with a collections firm, a national bank, credit union, or another lender.

Shield-4-scaled.webp

Confidential &
Trusted

As a law firm, our attorneys follow strict client confidentiality. Our services are discrete and effective.

Request a Free Consultation

Your initial phone consultation is free and requires no committment!
A team member will respond within 1 business day.

Request a Free Consultation

Your initial phone consultation is free and requires no committment!
A team member will respond within 1 business day.

tayne icon on cartoon letter in enveloper

Message Sent!

A Tayne Law team member will respond within
1 business day.