We have discussed UCC liens and how they can affect your business before on this blog. But you might still be wondering what one of these liens is, what their connection to merchant cash advances is, and how they work in New York City. Here is a brief overview.
When an MCA company agrees to give an advance to a small business, they generally require collateral. Instead of the premises the business inhabits (which many businesses do not own) or title to the business itself, MCAs usually are secured by equipment or other property owned by the business, such as a restaurant’s refrigerators, ovens and dishwashers. To make this security interest official, the MCA company files a Uniform Commercial Code (or UCC) lien. “UCC liens” are called that because they are based on the Uniform Commercial Code, a group of suggested business and financial laws that New York and other states have mostly adopted.
Once filed, a UCC lien appears on your business’s credit history. It notifies other potential creditors that the MCA company already has a lien on certain property belonging to your business. If you wished to use that same property as collateral for another loan or MCA, that creditor would be second in line to claim it if you default or fall behind on repayment. Most creditors would not want to do that, so you would have to secure a loan some other way.
Getting the UCC lien off your record
A UCC lien is supposed to last until you have repaid the cash advance, but the responsibility for removing it is on the MCA provider. If they do not take of it promptly, you might need to take steps yourself to get it removed. An attorney who supports businesses struggling with the effects of an MCA can help you with this process.