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What business assets can be subject to a UCC-1 lien related to an MCA?

On Behalf of | Dec 11, 2023 | UCC Liens

As we have discussed before in this blog, a merchant cash advance (MCA) is a type of cash advance for small businesses that cannot obtain traditional credit. The advancing company gives the cash to the debtor in exchange for a fixed percentage of the debtor’s daily revenue from credit card transactions. For additional security, the advancing company sometimes also places a lien on property belonging to the debtor. This is commonly called a UCC-1 lien because it comes from laws initially found in the Uniform Commercial Code.

Similar to a mortgage

In a way, a UCC-1 lien can be compared to the mortgage on your home. The house is the bank’s collateral for issuing the mortgage. If you miss payments and go into default, the bank has the right to seize the house. So it is with property subject to a UCC-1 lien. A business that does not do enough credit card business to make its daily payments is at risk of having some of its most valuable assets seized.

Business assets that can have a UCC-1 lien attached include:

  • Delivery trucks and other vehicles
  • Manufacturing equipment
  • Inventory
  • Real estate such as the debtor business’s premises, if the business owns it
  • Investment securities

Without these key assets, it could become impossible for you to do business. For example, a dry cleaning shop without its machinery would be unable to serve its customers. However, you may have other options besides going out of business. If you believe you are at risk of having your assets seized, or if it has already happened, a conversation with an attorney who represents debtors to MCAs could be very helpful.