If you’re late on a merchant cash advance, the MCA company can file a UCC claim and offer to work something out. “Do I need to bring a lawyer to review this?” is the question owners often ask. The short answer: don’t sign anything until an MCA experienced person has looked at it. These companies rely on the UCC to pressure owners into decisions they will regret, or into closing their business. To see why the review matters, it helps to understand what you are up against.
A UCC Filing
The Uniform Commercial Code is a set of laws relating to commercial transactions that is accepted by all 50 states. A UCC filing is simply a legal form that has been filed with your state’s Secretary of State. That form notifies everyone that the MCA company has a secured interest in your business. In an MCA arrangement the collateral is generally your receivables. The filing makes it easy for the MCA company to attach the collateral (or money) if you default.
How can they do that? You gave them permission. Most MCA purchase agreements contain language that says the Uniform Commercial Code applies to the agreement. It says that the receivables sold are accounts or payment intangibles under the UCC, that the MCA company has the rights of a secured party, and that it may notify your customers and tell them to pay it instead of you. In many agreements this is allowed with or without a default. You also gave them permission to file the UCC-1 forms and to withdraw from your bank account the cost of filing them.
Look at that section of the initial agreement too that talks about security. It will say what is in play. One typical section says that the MCA firm has a lien on your accounts, including deposits and receivables, your equipment, inventory, your general intangibles and any proceeds, to the amount of the receivables sold. Another section will let the UCC filing say you cannot get any financing that will impair the value of what you sold them. That’s a lot of leverage.
Once They File That UCC
When the MCA company files a UCC lien, it is because it wants two things. One is that you will settle, paying the same or similar terms and amount that you previously agreed to. The second is that you won’t settle and it can sue you, win a judgment, then enforce that judgment and get its money from you, which can include garnishing your future earnings. A UCC is supposed to protect the MCA company from losing its money, but it is often filed incorrectly or used inappropriately.
Once the UCC is filed, the MCA provider typically takes three steps. First, they send ”UCC 406” letters to your customers, your suppliers, your vendors, your banks and credit unions - anyone who pays you. They go to your customers, and they tell those customers to send the MCA company the money instead. A lot of times you only find out a UCC was filed when your payments stop coming in. Second, it freezes funds and threatens to hold them until you settle the deal. Then, if you don’t, it files suit, thinking it will get a judgment against you so it can then seize your assets and garnish your future earnings.
Review a Settlement
The settlement is where many owners get hurt. So you might be facing frozen funds. And then they might say to you, ‘Hey, we’re going to open them up, but you’ve got to pay this.’ Plenty of owners agree to the terms offered, usually the same or very close in amount to the original agreement. If the owner then defaults on the settlement, they are also removing themselves from the ability to defend themselves should the MCA company decide to push for a judgment. In some cases, MCA companies and their lawyers will refuse to release frozen funds until the balance is paid in full.
Which is exactly why you need someone who knows how to review a settlement for you. They will compare it to the original contract, and make sure the new amount and terms are better than what you originally agreed to, and that you’ll actually be able to keep to the payment schedule. Don’t forget, you could lose your ability to defend yourself if you default on the settlement. Even if the number on the offer looks “reasonable,” signing without reviewing is how owners end up worse off than before.
Your review should also examine the lien itself. A lot of these agreements include a clause that the security interest is automatically terminated once you have completely performed under the agreement and the MCA company agrees to deliver release and termination statements upon reasonable request. Any settlement you get should spell out when the UCC will be discharged and the funds that were frozen will be returned. Sometimes, UCCs are improperly filed, or are improperly used, so it is good to know if any of that has happened.
If someone has filed a UCC against you, the first thing is to find out about it. They are public. Look up your state’s Secretary of State office website and find its UCC search page. Search for your business name. (Some states don’t make it easy to find the filing.) But finding out who filed, and when, matters before you get to the negotiating table.
Do I need an MCA lawyer to review my settlement contract in 2026? Yes, you need someone who is familiar with MCA agreements and the UCC to review it before you sign it. This could be a lawyer. It also could be an experienced business debt settlement firm. What you absolutely should not do is sign it under duress and, especially, do nothing. More often than not, ignoring the problem only means you’re going to pay more than you should.
