For many business owners, discovering that a Merchant Cash Advance (MCA) provider has filed a lien against their company may come too late. Realization could happen when expected accounts receivable from customers are not deposited.
While MCAs are technically purchase-and-sale agreements rather than loans, providers utilize a powerful mechanism known as the UCC-1 Financing Statement to secure their interest.
I often see the operational challenges caused by these filings. This article breaks down generally what an MCA UCC-1 lien is, some of the potential risks of a blanket filing, and the procedural steps required to remove it from your business record.
What is an MCA UCC Lien?
The Uniform Commercial Code (UCC) is a comprehensive set of laws governing all commercial transactions in the United States. When an MCA provider funds your business, they often file a UCC-1 Financing Statement with your state’s Secretary of State.
This document serves as a public notice to other creditors that the MCA provider has a security interest in your business assets. It’s not a criminal judgment or a sign of bankruptcy. Rather, it’s a standard method of establishing a secured interest.
However, unlike a specific equipment loan where the lien only covers the piece of machinery purchased, MCA liens are often Blanket Liens.
The Danger of a Blanket Filing
A blanket UCC lien could be far reaching. It often includes:
- Accounts Receivable - Money owed to you by your customers.
- Inventory and Equipment - Your physical business assets.
- Future Assets - Assets you acquire after the filing.
- Intangible Assets - Customer lists and intellectual property.
The Operational Impact of a UCC-1 Filing
While a UCC filing is a standard procedure, its presence on your record can create significant hurdles.
1. The Importance of the First Position
A primary function of the UCC lien is to establish priority. If you attempt to secure traditional bank financing or SBA loans, the new lender will run a UCC search. Seeing a blanket filing from an MCA provider may result in an automatic decline, as the bank cannot take the first position regarding your collateral.
2. Enforcement via UCC Article 9
The most aggressive impact of an MCA UCC lien involves collections. Under certain circumstances described in UCC Article 9, and depending on the specific contract terms and applicable state law, an MCA lender may attempt to redirect payments from customers to their own account.
In other words, they can issue a notice demanding that your customers pay them directly instead of paying you. This can severely damage client relationships and disrupt your cash flow right away.
Auditing Your Lien: Is the Filing Accurate?
Before determining your next step, it is vital to review the actual UCC filing for accuracy. Errors in these documents are more common than one might expect. As part of your due diligence, you should verify:
- Debtor Information - Is the legal name of your business spelled correctly? Minor errors can sometimes invalidate a filing.
- Collateral Description - Does the description of assets match what was agreed upon in the contract?
- The Secured Party - Is the entity listed actually the funder you contracted with?
If the information is materially incorrect, it may be worth discussing possible correction options with qualified counsel.
How to Remove an MCA UCC Lien
A common misconception is that a lien disappears automatically once the advance is repaid. This is not necessarily true. The Secretary of State does not automatically purge records. The secured party must take affirmative action.
To remove the lien, a UCC-3 Termination Statement must be filed.
The Removal Process
- Satisfaction of Obligation - The underlying debt or obligation must be fully satisfied according to the contract terms.
- Request for Termination - You must formally request that the MCA provider file a UCC-3 Termination Statement.
- The Timeline - Under the UCC, a secured party generally has 20 days to file the termination statement after receiving an authenticated demand from the debtor (assuming the obligation is paid).
- Self-Filing (The Remedy) - If the MCA provider fails to file the termination statement within the statutory timeframe after your request, you may be permitted to pursue a termination filing. These filings are subject to strict statutory requirements, so professional assistance is strongly recommended.
Note: Do not attempt to file a UCC-3 without ensuring the debt is fully satisfied and that everything is in good legal standing. Filing a false termination statement can lead to liability.
When to Seek Legal Counsel
While administrative tasks can be handled internally, specific scenarios regarding UCC liens require attorney intervention:
- Failure to Release - You have paid the advance in full, but the funder refuses to file a UCC-3 or is unresponsive.
- Improper Enforcement - The funder is contacting your customers or freezing assets despite you being current on payments or having a dispute regarding the balance.
- Flawed Filings - The UCC-1 contains errors that are harming your business, and the funder refuses to amend them.
Our professional negotiators work alongside a network of independent attorneys available through our legal plan, as needed, to help present relevant financial information and assist with the filing process, as appropriate.
Disclaimer: Attorneys provide legal services directly to clients through the legal plan; Coastal Debt Resolve is not a law firm and does not provide legal advice. Any legal information discussed is general in nature and may not apply to individual circumstances.
Conclusion
An MCA UCC lien is a powerful legal instrument that can dictate the future cash flow and solvency of your business. It is not merely a record of debt. It is a claim on your company’s future revenue and assets.
If you are facing challenges with an improper lien, or if a funder is refusing to release a lien after you have satisfied your obligation, professional guidance is necessary.
Is an MCA lien hindering your business operations? Contact Coastal Debt Resolve today for a consultation. We can review your situation and help you navigate the complexities, along with reviewing MCA debt settlement and MCA payment restructuring options that could help you sustain your business interests.
Disclaimer: These materials are not legal or financial advice and are intended solely for general informational purposes. While we endeavor to keep the information accurate and current, it should not be used as a substitute for professional legal counsel. Information, including performance data, may change over time, and past performance is not predictive of future outcomes.
