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Can UCC liens affect my relationships with suppliers and vendors?

On Behalf of | Jan 29, 2025 | UCC Liens

Every business owner knows the value of good supplier and vendor relationships. Strong relationships ensure a steady and reliable supply of goods or services, which is essential for both business operations and meeting customer demands.

These bonds become even more important when you’re repaying a merchant cash advance (MCA). Without the benefits of good supplier relationships, you might experience a tighter cash flow which, in turn, can make it harder to keep up with your loan payments.

But what if your suppliers find out about a UCC lien against your business? Can it affect your relationship with them? Here’s what you need to know.

Why suppliers and vendors might be wary about UCC liens

A UCC lien is essentially a legal claim your creditor has over your business assets. If you fail to repay the MCA as agreed, the lender can legally seize your assets as payment.

Suppliers may be hesitant about working with businesses that have UCC liens against them. Common reasons include:

  • Financial stability concern: Liens can signal that a business is heavily leveraged or facing financial difficulties. Vendors worry this might affect the company’s ability to pay their invoices.
  • Priority in debt collection: In case of bankruptcy or default, creditors with UCC liens receive payment before unsecured creditors like vendors. This puts vendors at a higher risk of not getting paid.
  • Asset encumbrance: UCC liens often cover a broad range of assets. Vendors may worry that the assets they’ve sold to the business are already pledged to other creditors.

Even if these presumptions are not true, a UCC lien can make your business less trustworthy. Suppliers and vendors, after all, are also protecting their bottom line.

What can suppliers do after finding out about a UCC lien?

If your suppliers become aware of your liens, they might take steps to protect themselves. For example, they could shorten payment periods, reduce credit limits or even switch to cash-on-delivery (COD) terms to minimize their risk exposure.

Some suppliers may also delay shipments or require additional assurances before releasing your goods. This can lead to inventory shortages and operational downtime.
You may also have less access to favorable pricing, bulk discounts, flexible terms and other benefits if you pose an increased financial risk to their business.

As you can see, UCC liens can affect your business before they even become enforceable. If you want to resolve a lien, working with a debt settlement attorney can be the best first step.