Businesses often end up with UCC liens when they’re facing dire financial straits. While they’re sometimes a necessity, these liens can hold your business back over the long term, especially if not removed in a timely manner.
A UCC lien, or a Uniform Commercial Code lien, is something creditors use as a safety net. When your business borrows money or gets credit, the lender might slap a UCC lien on your business assets. They then have a legal right to repossess those assets if you default on the loan.
The risks of UCC liens
UCC liens are not just a piece of paper. They come with real risks that can affect your business in several ways. Here are a few examples of how they could hold you back from achieving your business’s highest potential:
- Cash flow crunch: With a lien in place, it could be harder to get more financing. When other potential lenders see that someone else has a priority claim on your assets, they will be less likely to give you more credit, or to do so on favorable terms.
- Loss of control over your assets: The assets tied up in the lien can’t be sold without first satisfying the debt. This can limit your ability to make business moves.
- Credit score hit: Just like personal credit, your business credit can suffer if you have a lien against it and fail to make timely payments. A poor business credit score can have a huge impact on future financial dealings.
In many cases, the benefits of securing financing with a UCC lien outweigh the downsides, but it’s important to carefully weigh these considerations before proceeding.