You likely needed funds fast when you signed your merchant cash advance (MCA) agreement. Many business owners do not realize the speed of funding often comes with a catch called a blanket lien. This legal claim attaches to almost every asset your company owns, putting your property and receivables at risk if you default.
Understanding the scope of the lien
While equipment financing or real estate mortgages generally secure a specific asset, general business financing often utilizes blanket liens. This structure covers much more than just one truck or building; it includes your inventory, accounts receivable, equipment and even future cash.
When an MCA provider files a financing statement against you, they put the world on notice that they have an interest in everything your business possesses. This filing encumbers your assets, which can prevent you from obtaining other financing or selling equipment to upgrade your operations.
Recognizing the signs in your agreement
Funding companies often bury these terms in the fine print of the security agreement. You should review your contract for specific language that grants an interest in “all assets” or “all personal property.”
Look for these specific terms in your contract:
- General intangibles
- Accounts and chattel paper
- Equipment and fixtures
- Inventory and goods
These provisions allow the company to assert rights over assets you did not intend to pledge.
The danger to your daily operations
The risk intensifies when you face aggressive collection tactics. However, a UCC lien does not automatically allow a funder to freeze bank accounts immediately. Freezing liquid cash generally requires a Deposit Account Control Agreement (DACA) or a court judgment and subsequent garnishment order.
Despite this, the lien creates significant leverage against industries like construction or transportation. A potential freeze on a bank account can stop a contractor from buying materials for a job, while a lien on equipment can complicate the status of a trucking fleet. This disrupts your ability to generate the revenue needed to resolve the balance effectively.
Defending your assets from invalid claims
Challenging these liens requires examining the validity of the original filing. MCA providers sometimes overstep their legal bounds or fail to perfect the lien correctly. Understanding the exact scope of what you signed is the first step toward defending your business assets. You may wish to consult a legal professional to review the validity of the security agreement.