Discovering that a merchant cash advance company filed a UCC lien against your business can feel like a warning sign that something more serious may follow. Many business owners immediately worry that the lender can walk in and take equipment, inventory or other assets without notice. Here’s what you need to know.
Does a UCC lien automatically give the lender your assets?
No, a UCC lien does not automatically give a merchant cash advance company ownership of your business assets. Instead, the lien generally gives the lender a legal interest in certain assets identified in the agreement, which helps protect the lender’s position if a dispute or default arises. While that may sound alarming, filing a UCC lien and actually taking assets are not the same thing.
What assets can a merchant cash advance UCC lien affect?
The answer often depends on the language of the financing documents you signed. Some merchant cash advance companies file broad UCC liens that cover a wide range of business assets, including equipment, inventory and accounts receivable. As a result, the lien may affect more than a single piece of property, which is why understanding exactly what the filing covers can become important.
When can a UCC lien become a bigger problem?
A UCC lien can become a bigger problem when financial challenges continue or collection efforts escalate. For example, a lien may create obstacles if you seek additional financing because another lender may view the existing lien as a risk. In some situations, ongoing payment issues can also lead to more aggressive collection activity, which makes it important to understand your position before matters become more complicated.
Take action before the problem grows
A UCC lien does not automatically mean you will lose your business assets, but it is not something you should ignore. If you have questions about what the lien covers, how it may affect your business or what options may be available, speaking with an attorney can help you better understand the situation. A little clarity now may help you avoid costly surprises later and give you a stronger sense of control during a stressful time.