The Name on the Form Usually Belongs to a Stand-in
You ran a UCC search on your own company and found a blanket lien against all of your assets, filed in the name of Corporation Service Company, a business you have never borrowed a dime from. Who is behind this mysterious filing? So you shouldn’t assume that, because the form says a state service of process company has a lien against your business, that the company actually has any claim against you. The short answer is that the name on the form usually belongs to a stand-in, not the lender. The long answer is a bit more complicated.
A UCC filing is a public record, and every lender knows that anyone can find out whether a business has a lien against its assets. The filing is meant as notice: it is to be viewed as providing information to third parties about who might have a claim to the borrower’s property. Under the Uniform Commercial Code, a lender can list a representative instead of itself as secured party on the UCC filing, and the form does not need to disclose that it is only a representative. The representative is the ”secured party of record,” the primary contact for the lender and the one responsible for the secured party’s duties under the UCC until it is replaced. So a service company name usually means a stand-in.
Why go to the trouble? A lender may want to hide its true identity, and not have everyone know who the lender is, and the reason is usually competition. If one factor shows up as secured party on fifty filings, those fifty businesses are a published client list, and merchant cash advance companies tracked their competitors’ clients down and offered financing terms that were more attractive than the clients’ current financing providers. Many companies were upset by this tactic and started using these corporate shills to “hide” their client lists. Some use trade names, some use a service company as their public face, and the original lender never shows up. A stand-in like that also makes it hard for a small business owner to contact the lender and figure out where the money came from. Which means it’s up to you to figure out who the lender is. Here are five clues that will lead you to the funder, regardless of what name is on the top of the form.
Find Out Who Your Funder Is
1. Call the name on the filing. The service company is the secured party of record, so start there: call the number on the filing and ask to speak with someone who can help you. Be polite, but firm. Explain to their rep who you are, what you do, and why you want to know who the lender is. If they can’t answer your question, ask for someone who can. Whoever you reach, take down their name (this way you can refer to them each time). Don’t expect a straight answer the first time. You may be told the lender would rather not reveal its name, and you may be pointed to an online request form, with the lender left to decide whether to get in touch with you at all.
2. Demand an accounting in writing. Section 9-210(b) of the UCC gives a debtor the right to request an accounting from a secured party. When I say “writing,” I mean “writing.” Make sure to include the debtor’s and secured party’s full legal names, along with the UCC filing number. It’s a good idea to say that you are doing so under Section 9-210(b) of the UCC. You are demanding something that you have a legal right to get. The party receiving the request is supposed to comply within 14 days. There is a catch: the rule covers a secured party ”other than a buyer of accounts.” Factors and MCAs love to tell us they buy receivables, they do not lend money. It is harder to make that argument if it is a recourse factor or MCA. Since you cannot tell which it is until you find out who your funder is, send the request anyway.
3. Go through your own records. Look at the date the UCC was filed and ask yourself: Did any funder make it to the step after qualifying me but before finalizing the deal? Lenders often file a UCC-1 before a deal closes, which is common practice, and the filing is usually terminated if the deal never happens. So check all your old e-mail records and documents. Then, look back through your bank statements. Merchant cash advance companies collect through automatic withdrawals from your checking account, so the names on those debits may be the best clue as to who has money tied up in your business. Even if you don’t find the information this way, the exercise will force you to think about those funders you talked to and will help jog your memory.
4. Don’t stop at the portal. A portal leaves it up to the lender whether you ever hear back, and some service companies don’t even have one. They rely on employees, who may be overworked, to call the lender and pass the request along, with no follow-up procedure. They could complete the form or deliver the message for a day or two and then forget about it. It’s hard to get anywhere just through the portal. If you go through all the red tape just to reach a real person, be persistent. Keep track of the day and time you ask them to take a message, and set a timer to call them back. Do not allow the opportunity for contact to just disappear. This is not a favor you are asking for; you should have the right to know who is claiming an interest in your property.
5. Bring in a lawyer. Sometimes only the threat of litigation works. When a business attorney was doing a lien search for a client, he ran across several blanket UCC-1 filings against all the company’s assets. He was puzzled - nobody named on the filings were part of the company, and none of the officers had ever heard of the person or company named. When he went looking, the representative refused to even say who the lender was, much less comment on the debt itself. Instead, he told the attorney to fill out a PDF request form through some portal. It took weeks, and the threat of legal action, to finally find out who it was. The lender had filed before a financing that never closed and forgotten to release the filings. Since no money had been given, there had never been a security interest. The lien was eventually released after much time and money was spent. That situation was pretty extreme, but the fact is: you need to know who is holding those UCC-1s, regardless of how they happened.
Real Damage
An unexplained lien does real damage when you are trying to get out of trouble. A lender who might refinance you can’t tell whether the old debt is $10,000 or $10 million, or who holds it, and won’t know who to talk to for a payoff. A buyer for your equipment or inventory would be concerned that assets on the books are not yours to sell. When you need credit, it complicates the process. The more confusion there is in your business world, the harder your recovery is going to be.
So if you are a business owner staring at a lien you can’t explain, you need to be persistent, ask tough questions, and get someone on the line that can help you. If the trail leads to a funder you owe, knowing who holds the debt is the first step toward negotiating with them.
