A UCC filing is a critical aspect of securing loans and merchant cash advances (MCAs). If you have agreed to an MCA that involves a UCC lien, you need to know exactly what it covers and how it affects your business.
Impact on your assets
A UCC filing is the official notice lenders use to declare a security interest in your business assets or property. This filing establishes a lien against your collateral, giving the lender first-position rights to claim that collateral if you default. Typically, it happens when the MCA company you accepted the advance from files the liens using a UCC-1 financing statement with the secretary of state’s office in your state.
When a UCC lien is in place, your assets are effectively tied up. This lien identifies the assets or properties the lender has a claim to and notifies other creditors of this security interest. Your real estate, inventory, receivables, vehicles, machinery, and equipment could all be subject to this lien. This means you cannot secure another loan or MCA using the same assets until the UCC lien is lifted. Your hands are tied, and your ability to leverage your assets for further financing is severely restricted.
Public record implications
Once a UCC lien is filed, it becomes public record and visible on credit checks. This public visibility can have significant implications. Potential business partners, investors, and other creditors can see that your assets are encumbered. This might raise red flags about your business’s financial stability and limit your opportunities for growth and expansion.
Duration and continuation of the lien
UCC filings generally last for five years. But if your loan or MCA is still active after this period, your lender can apply for a continuation of the lien. This extension can prolong the restrictions on your assets and continue to impact your business operations. Lenders can also file amendments or addendums to the statement, making changes to the collateral or the terms of the lien. You’re not in control; the lender holds the power to dictate the terms of your financial freedom.
What can you do about it?
A UCC filing can have a profound impact on your business, but it does not last forever. It is up to the MCA company to release the lien once you have paid off the advance. If they won’t, you can talk to an attorney who deals with MCA problems to find out how they can help get the lien taken care of.