Most business owners who come to us about a UCC lien did not know it existed until somebody else found it. Maybe a lender pulled a lien search on a new loan application, or a buyer was performing due diligence on your business to make sure it is free and clear of any liens. Either way, one way or another, someone else brought it to your attention. The business owner first wants to know why that is there, the second is how to get rid of it, if possible.
The Uniform Commercial Code
When you took the advance, the funder most likely filed a UCC financing statement to “perfect” its security interest and establish its seniority in your collateral. The Uniform Commercial Code is a set of rules that establish procedures for secured transactions. If an MCA funder has filed a UCC financing statement on your business, you need to find out where that lien has been filed: the county or the state. It could be either place. In North Carolina, for example, the financing statement is recorded with the Secretary of State, unless the collateral involves fixtures. A fixture filing goes into the property records of the county where the real property is located, such as the Register of Deeds.
Paying the funder does not make the filing disappear. The UCC does not require a secured party to file a termination on its own once the debt is satisfied, unless the collateral is consumer goods. In a commercial deal, unless you make a formal demand, a termination statement is only filed if the funder agrees to do it and files it voluntarily. So the filing can sit there, still effective, until someone (like you) decides they want to do something with the collateral or clean it up. The filing can work against you: it has negative effects on your ability to secure financing or sell your business. Here are six ways to get it off the record.
File the Termination Statement
The first way is the most direct: satisfy the debt. Either pay it in full or negotiate a settlement for less. Once the obligation is met, you can request that the funder file the termination statement. There are some funders who, after you pay off a loan, simply release the lien. It may sound simple, but if an MCA funder doesn’t relinquish your lien immediately after you’ve paid back the advance, you’ll need to ask them for it. Sometimes you can just email or call the funder and say, “I paid you off. Release my UCC lien.” Some funders do respond and do that, but don’t count on it.
The second way turns that request into an obligation. Under UCC 9-513, once there is no longer any obligation secured by the collateral and no commitment to make an advance or give value, the funder has 20 days after receiving your authenticated demand to either file the termination statement or send it to you to file. Do not let the jargon throw you: an authenticated demand is just a signed, written demand. It can be simple. It means you need to write something like, “I, [your name], demand that you file the termination statement regarding the filed UCC financing statements.” Then you put your signature at the bottom. Send the request by certified mail and make sure you keep proof of delivery (or receipt). This just proves that the funder got the letter.
The third way is for when the funder does nothing. If the 20 days pass and the funder has neither filed the termination nor sent it to you, you may file it yourself, as long as there are no obligations owed to the funder. That means that you prepare it on your own and submit it to the office where the funder filed the original financing statement. Big caveat: Don’t file the statement unless you are certain no obligations are owed to the funder. So once the 20 days have passed, consult with a lawyer before you file the termination. Your attorney will want to make sure you can prove you owe nothing. It’s very important to determine the accurate amount of the debt you have owed to the funder and to note the date that you were fully paid off.
The fourth way covers a narrower situation. A debtor may also file a termination if it never authorized the secured party to file the financing statement at all. Very rarely does this happen. However, if you never told the MCA funder to file, and they did so anyway, then you have more grounds for complaining about the financing statement. The document that you signed, which would include a funding agreement, almost certainly has a section on it stating that the funder can file a UCC on the collateral for the advance. So unless you can prove otherwise, it probably won’t work.
The fifth way takes patience. A UCC financing statement is effective for five years. After that it lapses and is no longer effective as to other secured lenders. For some businesses, simply waiting for it to lapse might be the easiest option. The problem is that the funder can file a continuation to extend it, and if you need a loan or a sale to close this year, five years is a long time to wait.
The sixth way is leverage. A funder that fails to file or send the termination is subject to damages under UCC 9-625(b), including when that failure keeps you from getting other financing or makes it cost more, plus a $500 penalty under 9-625(f). Sometimes the threat of the damages is enough to get a funder to take down the lien. The lien may be removed if you can convince the funder that you’re serious about pursuing a lawsuit against it and that the damage and penalties could add up. It is better if you do mention the penalty, so they know you are serious. If the funder still stalls, show it the sections of the UCC where it outlines your statutory rights and mention that you are prepared to exercise them.
You Are Not Out of Luck
If you are stuck with a UCC financing statement filed by an MCA funder, you are not out of luck. Removing a financing statement filed by an MCA funder can help your business. You will be more likely to qualify for future loans. If the balance itself is what stands in the way, settling it is usually the first step, and that is the part a debt settlement firm like Delancey Street can help with. We’re not able to get involved in actual legal advice, so if you find yourself in a situation where you must resolve a UCC lien, it’s always best to consult with an attorney. The silver lining is that once you’ve paid off the advance and you know how to get a funder to take down the lien, you will have a guide for how to handle future funders too.
