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Is a UCC lien dangerous for your business?

On Behalf of | May 29, 2024 | UCC Liens

For many business owners, securing a merchant cash advance (MCA) can be a lifeline, offering quick access to funds. However, this convenience could also come with a downside, such as having business assets in a Uniform Commercial Code (UCC) lien.

Understanding the implications of a UCC lien is crucial to ensure that your business remains afloat and thriving.

What is a UCC lien?

A UCC lien is a legal claim filed by a lender to publicly declare their interest in a borrower’s assets as collateral for a debt. In the context of MCA, the provider can file a UCC statement to put a lien on your business’s assets. If you fail to repay your debt, your creditor can seize and sell these assets.

A UCC lien can have a profound impact

While a UCC lien is not essentially dangerous, it can have severe consequences for your business. For one, it can prevent you from securing additional financing. Most lenders conduct a UCC search to evaluate your application, and an existing lien could discourage them from granting your request. With limited access to funds, it might be difficult to maintain business operations.

Moreover, a UCC lien can affect your business’s reputation. With a lien, potential partners might view your business as high risk. This could lead to less favorable terms or refusal to engage with your business. This could snowball into hampered operations and cash flow.

Understanding your MCA contract can manage the impact of UCC

Filing a UCC is a common practice in business transactions. Understanding your MCA contract and its UCC lien terms is the first step toward managing its impact. You can negotiate with your lender to limit the lien to specific assets instead of having a blanket lien over all your business assets. It is also crucial to review your UCC filings regularly.

You do not have to handle this alone

A UCC lien can pose challenges, but it is not necessarily bad for your business. Nonetheless, it is crucial to take this seriously and with caution to prevent further damage to your business. In this complex situation, it would be valuable to seek guidance from experienced legal professionals who can advocate for your interests. With the right guidance and support, you can make informed decisions that would be favorable for your business’s future.