UCC Liens

A UCC lien is a public filing that puts the world on notice that a creditor claims a security interest in some or all of your business assets. It sounds technical, but the practical effect on a small business is immediate and disruptive: bankers see it, future lenders see it, and in some cases your own customers see it.

For merchants who took a cash advance and now want to refinance, sell the business, or just keep operating, the UCC filing is often the single biggest obstacle.

What a UCC-1 Actually Does

The UCC-1 financing statement is filed under Article 9 of the Uniform Commercial Code, adopted in some form by every state. The filing perfects the funder’s security interest, meaning if your business defaults or goes into bankruptcy, the filer has a publicly recorded priority claim on the collateral described in the filing.

The collateral description ranges from narrow (“all accounts receivable arising from sales to ABC Customer”) to extremely broad (“all assets of the debtor, now owned or hereafter acquired”). MCA funders almost always file the broad version, often referred to as a “blanket lien.”

What the Lien Freezes in Practice

A blanket UCC lien does not literally freeze anything by itself. The filing alone does not stop you from operating, paying employees, or running your business. What it does is create downstream consequences:

• New lenders walk away. Any prospective funder runs a UCC search before underwriting. An existing blanket lien from another funder almost always disqualifies you, because the new lender cannot get priority on the same collateral.
• Banks may decline new accounts or product expansions. Especially SBA-affiliated banks, which require clean UCC searches.
• Business sales stall. A buyer’s due diligence will surface the lien and require a payoff or release before closing.
• Your AR is exposed. If the funder later sends UCC § 9-406 notices to your customers, those customers may be legally obligated to pay the funder directly.

How UCC Liens Get Stacked

The MCA world’s worst feature is that funders rarely check for, or care about, existing liens. A merchant who takes three or four advances often ends up with three or four overlapping UCC-1 filings, each claiming a blanket interest in all assets. Legally, only the first-filed funder has priority, but the practical effect is that all four filings appear in any search and all four create obstacles.

What You Can Do

UCC liens are governed by UCC Article 9. The same statute that lets funders file the lien also gives merchants tools to challenge or remove improper filings.

Under UCC § 9-513, a secured party is required to file a termination statement (UCC-3) within 20 days of receiving an authenticated demand from the debtor, once the obligation is paid or the security agreement is otherwise terminated. If the funder ignores the demand, you have a statutory damages claim of 500 dollars plus actual damages.

Under UCC § 9-518, you can file a correction statement disputing an inaccurate filing. The correction statement does not remove the filing, but it puts a public record on top of it that prospective lenders will see during diligence.

Negotiating a Release Before Payoff

The most common path our senior advisors run for clients is the negotiated release. We approach the funder, settle the underlying debt at a reduced amount, and condition the settlement payment on simultaneous delivery of a signed UCC-3 termination. The lien comes off the public record within days of funding the settlement.

Done right, that single transaction often unlocks new financing, a stalled business sale, or a long-deferred line of credit. The lien removal is frequently more valuable than the settlement savings.

When Independent Counsel Gets Involved

If the funder refuses to release the lien even after payment, refuses to negotiate, or filed a UCC against collateral it has no security interest in, an independent attorney from our referral network can file suit under UCC § 9-625 for damages and a court-ordered termination. Those cases are usually short and the merchant prevails when the facts are clean.

Delancey Street is a business debt-relief company, not a law firm. When a matter requires legal work, we refer you to an independent attorney from our referral network; the attorney–client relationship is between you and that attorney.

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