The Uniform Commercial Code (UCC) governs secured transactions in the United States. Using UCC liens is a common way lenders secure repayment of merchant cash advances (MCAs) from businesses. However, disputes can arise when lenders and borrowers disagree.
These disputes can worsen into litigation, putting the borrower’s business at risk. To navigate these UCC lien disputes, it is essential for borrowers to know the key issues that often arise.
Priority of liens
One key issue is the priority of liens. When multiple lenders have liens on the same collateral, the priority of the liens can be disputed. According to the UCC, the first lender to perfect a lien generally has priority over subsequent lenders.
Validity of the lien
Another key issue is the validity of the lien. The borrower may argue that the lender did not properly file the lien. The UCC requires lenders to properly perfect their security interest. If a lender fails to file a UCC-1 financing statement and does not comply with other UCC requirements, the lien may be invalid.
Amount of the lien
Finally, a third key issue is the amount of the lien. The lender may claim the borrower owes more than the borrower believes is owed. Further, UCC lien disputes can be complex and require analysis to determine the correct amount owed.
Next steps in resolving disputes
To resolve UCC lien disputes, borrowers should review and understand the terms and conditions of the lien. They can also consider seeking the advice of a financial adviser or a business consultant regarding how to protect their interests.
Fighting for a favorable outcome
UCC lien disputes can have serious consequences for a business. The borrower’s ability to operate the business may be at risk. By seeking advice from a legal advocate, the borrower may better navigate the complexities of UCC lien disputes and litigation. With legal guidance, they may also assert their rights and fight for a favorable outcome.