If you’re a business owner with a UCC lien filed against you, you may be wondering how to go about resolving the situation. If the lien came from a merchant cash advance lender and you are struggling with the payments, it poses a serious risk to your business. But is it possible to get the lien removed by negotiation? And what are the risks if you don’t?
The short answer is yes. But the lien is not a separate bill you can bargain down on its own. It’s really a negotiation of debt. If you negotiate the debt and you can get it reduced and pay it from there, you’ll want to get the lien removed as well. The tricky part with the lien is that it’s public record. So you need to make sure when you’re negotiating with the provider that this will actually get removed.
A UCC Lien on Your Business Assets
When a lender files a UCC lien in a state, it puts the business owner and potential creditors on notice of the lender’s security interest in the borrower’s assets. UCC stands for the Uniform Commercial Code, which governs these secured transactions everywhere in the United States except Louisiana. “Collateral” means either a specific item or a blanket claim on any and all property owned by the business. It could be equipment, inventory, or other assets. When it’s filed, a UCC-1 creates a public record of that claim, protecting the funder’s rights. The form is filed with a state agency, usually the Secretary of State, and you may see it referred to as a UCC filing. When you took the advance, you most likely signed off on it.
The kind of lien a lender files can tell you a lot about what you are dealing with. A blanket, or all-assets, filing gives the lender a claim on all the assets of the business, including after-acquired property (property acquired after the financing statement was filed). A specific collateral filing names particular assets, such as equipment, inventory or accounts receivable. Lenders can put UCC liens on a pretty wide range of business assets. Real estate, machinery, vehicles, stocks and securities, accounts receivable, inventory, chattel and letters of credit can all serve as collateral. Whatever the filing covers, if you default, the lender can seize the property it was supposed to protect, then sell it to pay off the loan. And if the lender does take action to enforce the lien, you may lose valuable business assets that are essential to your operations. If one of them is critical to the business, then it could also affect your company’s ability to operate.
Even before that point, the filing does damage. Other lenders may be hesitant to extend credit with a UCC lien on your business assets. This lien shows up on a public record, which means other lenders can see it when you apply for new credit. It can also make it harder to get favorable terms from suppliers and vendors. Because a UCC lien has such severe implications, it makes sense to take it seriously and negotiate a way out of it.
Like most things in life, any negotiation works better if you’ve done your homework first. Start with the notice. Who filed it? Read the goods description — what property is the lien on? How much does the lender say you owe? Make sure the notice is correct. Check that all of the information is accurate. That means your business details as well as the terms of your advance. Make sure the lender hasn’t made any errors in the filing.
Then decide what you want. If you think the debt isn’t real or the lien isn’t valid, you can go to court. If you can pay, you can satisfy the debt and have the lien released. For most owners who are behind on an advance, the realistic path is to work with the existing lender and come up with a restructuring of the payment schedule or an agreement you could live with. Or you can negotiate a settlement. You want to pay less than the balance of the debt so you can be released from the lien. The solution to your UCC lien is highly dependent on your particular situation. Hiring a lawyer to handle negotiating the UCC lien for you, or to file a legal action to dispute the claim, may be worth your time and money. If you cannot even come up with a proposal for how to get out of it, you should get professional help.
Communication can go a long way. When you talk to the lender, be clear about your concerns and your goals. The big thing is to document what you want. In any case, you must document everything. As with any negotiated settlement, it should be made in writing. It’s always important to document this in writing so there’s no dispute about the bargain in the future. Then stay on it. Reply when they respond. Call them and follow up. Don’t let this just sit there.
A UCC-3 Termination Statement
If you’re paying off debt, the lien doesn’t automatically get removed just because you pay the debt. Once the debt is satisfied, a UCC-3 termination statement has to be filed with the Secretary of State’s office, by you or by the lender. That document notifies the public that the debtor does not owe the money anymore, and that the collateral is freed from the lien. Without that document, the lien is still publicly extant. It’s possible they’ll forget about the release, so it’s still best if you have it filed and make sure to follow up with them.
You can check your record on your state’s Secretary of State website. Doing a search isn’t always easy, but it’s worth it to find out if you have any potential liens to deal with. Having a UCC-1 filing on your record is not necessarily a bad thing in itself. It just means that any other potential lenders will be able to see it and make a decision based on their comfort level about extending you further credit. An active one can still hurt you, though, even after the debt is paid.
So the answer to the question you might be asking is “can I negotiate my UCC lien?” The answer is yes, absolutely. And it’s usually better to tackle the UCC filing debt and hopefully negotiate a deal and pay down that debt so you can be released from the lien.
If you’re being harassed by a lender or can’t keep up with payments, you don’t have to sort this out alone. We understand that unforeseen circumstances happen. Delancey Street works with business owners to negotiate the debt behind the lien. It’s important to have an advocate as you address this.
