What Is an MCA UCC Lien?
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.
Moreover, the lien could impact your business if you fail to repay the
merchant cash advance. Here’s what you need to know about MCA
UCC liens, how they affect borrowers, and how to get rid of one.
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.
How a UCC Lien Can Impact You
UCC liens are common place 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 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 hire a Business Attorney.
When to Consider Hiring an Attorney
If you don’t have the time to deal promptly with your MCA funder. In
many situations where something goes wrong with a UCC lien, An
attorney can also be worth considering if you’ve defaulted on your
MCA. An attorney can also help you navigate the process and even
negotiate a settlement to pay less than what you owe.
Merchant cash advances are one of the most expensive forms of
business funding. If you have an MCA UCC lien on your business,
you’ll need to pay off or refinance the debt to get rid of it.
Defaulting on business debt means you’ve breached your contract
with the lender. At that point, they can take additional steps to collect
the debt. For instance, They may take legal action and sue you in
court. This is not only costly in terms of legal fees, but you could end
up having your bank accounts frozen, assets liquidated, and more if
you lose the case.
With some types of business financing, such as merchant cash
advances (MCAs), your contract may contain aConfession of
Judgment (COJ). This allows the creditor to file a lawsuit and obtain
a judgment against your business without going through the regular
lawsuit process or giving you the opportunity to represent yourself in
court.
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