UCC Lien Still Showing After Payoff: How to Fix It

You paid off that business loan a while back. But when you run a business credit report, it looks like there’s still a UCC lien. It’s like the old loan didn’t get paid at all. What gives? You’ll mostly care about this if you’re looking for additional funding. Having a UCC filing means any new lenders might be skittish about extending you credit.

UCC stands for Uniform Commercial Code. The lender filed a UCC-1 financing statement with the secretary of state, in order to secure the money you borrowed. The filing’s a lien against your assets. It’s public record, and it gets noted on a business credit report. But it doesn’t impact your business credit score. It’s not at all unusual for a small business lender to file one.

Two types of UCC-1 lien are available: A blanket lien is a lien on everything. A non-blanket lien has the specific collateral written in the form. This specific collateral is typically the items the business owner purchased with the loan. Creditors are paid off in the order they filed. The first lender gets first pick of the assets. The next lender goes next, and there may be nothing left after the first lender is paid off. To lenders that want to lend to you, an existing UCC filing could mean risk. An existing UCC could curtail your future financing options. Furthermore, you may not be able to sell assets that are collateral for the loan.

Termination Statement

Once you pay a debt in full, you want to make sure the UCC-1 is terminated as well. Under the UCC, Section 9-513 says the lender is supposed to file a termination statement within a month after you paid the debt off. However, UCC filings generally expire after 5 years so lenders will often decline to file a termination statement. Which means that the responsibility to get the filing off your business credit history often lies with you.

What you can do: send a letter requesting termination. The letter is called an “authenticated demand”. That is a signed letter to the lender requesting them to cancel the filing. Include the lender’s name and address as printed on the financing statement. The lender will then have 20 days to either file the termination statement or send you the termination statement for you to file with the secretary of state.

Once the lender has ignored your notification that the UCC lien needs to be terminated for 20 days, you’re allowed to terminate it yourself. The form is called a UCC-3. On that form, select the box for “a debtor authorizes the amendment”, and you can identify which debtor it was that authorized it (i.e., probably you).

A UCC-3 is used for a few different things. It is the form used by the lender or you to terminate the UCC-1. After 5 years, if the debt hasn’t been paid off yet, and the lender wants to continue the filing, the lender may file a UCC-3 for continuation. A UCC-3 is also used to amend the original filing. This could include party info (such as a name or address change), collateral, assignments.

Then, once it’s terminated, the credit reporting agencies will remove the lien from your business credit report. Not necessarily, but that’s the way it’s supposed to work. But if you know that the lender terminated it and it is still showing up on your credit report, then go ahead and contact the credit reporting agency and see if you can get them to remove it.

And what about liens that you didn’t even know existed? A lender might file a UCC-1 when you apply for financing, because they expect they’ll end up funding you. Even if they don’t fund you, or you’re denied for the financing, they might not terminate it. You can find out if a lender filed a UCC-1 by using the National Association of Secretaries of State website to find links to every state office. Some states will let you search UCC records online, and others might want you to submit a search request in writing. To search online, you’ll need the debtor’s name (business or individual) and/or the UCC filing number or the financing statement number. There is usually a charge for a copy of the filing.

Fix It Before You Apply for Funding

Here’s the plan of action. First, figure out exactly what’s been filed and who filed it. Run your business credit report or do a search of the secretary of state UCC records. Then send an authenticated demand to the lender. Get the name and address from the financing statement. Give them 20 days to answer. If you haven’t received a response, UCC-3 yourself. If after the UCC-3 you still see the item on your business credit report, call the credit reporting agency. Fix it before you apply for funding, because otherwise existing UCC filings can be seen as a sign of credit risk for lenders.