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Understanding UCC Liens And Their Implications For NYC Businesses

On Behalf of | Mar 7, 2024 | UCC Liens

A  Universal Commercial Code (UCC) lien is essentially a claim made by a lender on a borrower’s assets until the loan is fully repaid. When you take out a secured loan or use equipment financing, the creditor files this lien establishing its right to repossess the equipment or other assets in case of default. While these liens do not typically impact day-to-day business operations, they can affect your credit and ability to obtain future financing. They appear on business credit reports and limit the use of certain assets to secure future financing. In essence, they put your collateral at risk of repossession.

Tips For Business Owners To Avoid Pitfalls

It’s crucial first to understand the two types of UCC lien filings: those against specific collateral and blanket filings that cover all company assets. If you’re considering taking out a loan secured by a specific piece of collateral – like equipment or real estate – you must understand the risks. If you default on the financing, the lender has first priority to repossess that particular item but cannot attach it to other company assets.

In contrast, blanket UCC filings cover all company assets. This type of filing may make loans more accessible, at first, but it can make qualifying for future loans difficult as all business assets have an encumbrance on them.

To remove a UCC lien, you must first pay off the outstanding loan balance. The lender should then release the collateral within one month by filing a UCC-3 Financing Statement Amendment with the secretary of state, thereby removing the UCC-1 filing and terminating the lien.

You Do Not Have To Handle These Loans Alone

Remember that every situation is unique; what works well for one business may not be suitable for another. Therefore, personalized advice from someone knowledgeable about your specific circumstances can prove invaluable when dealing with matters as complex as UCC liens.