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Q&A: Six common questions asked about UCC liens

On Behalf of | Jun 11, 2024 | Firm News

Navigating the world of finance and business can be complex, especially when it comes to understanding legal terms and procedures. One such term that often comes up in the context of loans and collateral is a UCC lien. This guide aims to demystify UCC liens by answering some of the most common questions we hear about them at MCA Debt Relief.

1. What is a UCC lien?

A Uniform Commercial Code (UCC) lien, or a UCC filing, is a legal notice filed by a creditor to publicly declare its interest in a debtor’s personal or business property. The creditor typically files a UCC lien when the property becomes collateral for a loan.

2. How is a UCC lien established?

It is established when a creditor files a UCC-1 financing statement with the Secretary of State’s office in the applicable state. It is official public notice that the lender claims an interest in the debtor’s property.

3. What types of assets can a UCC lien be filed against?

The creditor can file it against a wide range of assets, including specific items like equipment and inventory or all of a business’s assets. The UCC-1 financing statement will specify the assets.

4. What happens if a debtor defaults on a loan with a UCC lien?

If a debtor defaults on a loan, the UCC lien gives the creditor the right to take possession of the assets listed in the UCC-1 financing statement. Doing so enables the creditor to recover the amount owed by the debtor.

5. How long does a UCC lien last?

A UCC lien is effective for five years. To retain the lien’s priority status, the creditor must renew or continue it after five years. Once the loan is satisfied, the borrower must request that the lender file to terminate the lien.

6. How can a UCC lien affect a business’s credit and future financing opportunities?

A UCC lien can impact a business’s ability to obtain future financing. Potential lenders may see the lien as a sign of financial distress, which could make them hesitant to extend credit. Additionally, the lien could lower the business’s credit score, making loans more expensive or difficult to obtain. However, for companies that fulfill their obligations under the loan agreement, the removal minimizes the lien’s impact on the business’s credit.