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What is a UCC Lien?
A UCC lien, or Uniform Commercial Code lien, is a legal claim placed on a borrower’s personal or business assets by a lender or creditor. This lien is not a judgment or a sign of wrongdoing; rather, it's a standard method used to secure financing. It provides public notice that a lender has an interest in certain assets used as collateral for a loan or other credit agreement.
The process of filing a UCC lien begins when a lender submits a UCC-1 Financing Statement with the Secretary of State's office in the borrower's state of incorporation or residence. This filing essentially “perfects” the lender’s interest in the specified collateral, ensuring that they have a priority claim over it if the borrower defaults.
About UCC Liens
Why does a UCC Lien filing occur?
There are several common reasons a UCC lien might be filed:
Secured Business Loans
When a business obtains a loan—especially a working capital loan, equipment loan, or merchant cash advance—the lender will typically file a UCC-1 to secure their interest in specific assets. These assets can range from inventory and equipment to accounts receivable and intellectual property.Vendor or Supplier Credit
Sometimes vendors or suppliers offer goods or services on credit, and they may file a UCC lien to secure payment. This is especially common in industries like manufacturing or wholesale, where inventory and materials are central to operations.Leases and Equipment Financing
If a business leases equipment or vehicles, the lessor may file a UCC lien against that equipment to ensure it can reclaim it if lease terms are not met.Blanket Liens
A blanket lien gives the lender rights over all assets of the business rather than just specific items. These are common with larger business loans or lines of credit from banks or alternative lenders.Merchant Cash Advances and Revenue-Based Financing
In these cases, a lender may place a UCC lien on future receivables or cash flow streams to ensure repayment.
In essence, a UCC lien is a protective mechanism for creditors. It doesn’t necessarily mean a business is in financial trouble—just that the loan or credit is secured by collateral.
How Do You Know if a UCC Lien Has Been Filed?
Business owners can check for existing UCC liens by performing a UCC search through the Secretary of State’s website in their state. These searches are public and typically require only a business name or entity number. It’s a good idea to periodically check this database to ensure there are no outstanding or inaccurate liens on file that could affect financing or partnerships.
How to resolve a UCC Lien?
While a UCC lien is common and not inherently harmful, it can have certain implications:
Restricts Future Borrowing:
A lender may be unwilling to offer a new loan if a prior lender has a UCC lien on essential assets, especially if it’s a blanket lien.Affects Business Transactions:
If a business tries to sell assets or merge with another company, any existing liens will need to be addressed or released first.Credit Implications:
While UCC filings don't usually affect a personal credit score, they can impact a business’s ability to secure additional funding, especially with institutional lenders who assess lien position and collateral availability.
What Impact Can a UCC Lien Have?
There are several ways to resolve or remove a UCC lien:
1. Pay Off the Debt
The most straightforward way to remove a UCC lien is to repay the debt in full. Once satisfied, the lender should file a UCC-3 Termination Statement, formally releasing their claim on the collateral.
2. Request a Termination Statement
If the lender doesn’t automatically file a termination, the borrower can request it. Some states allow borrowers to file a termination statement themselves if the debt has been paid and the lender fails to act within a certain time.
3. Dispute an Inaccurate or Fraudulent Lien
In some cases, a lien may have been filed in error or by mistake. If this happens, the business can contact the filer to request removal. If the filer refuses or cannot be reached, the business may need to submit a sworn statement and supporting documents to the Secretary of State to contest the lien.
4. Work With a Professional to Negotiate the Lien
Navigating a lien can be tricky. To ensure the process is handled expertly and the lien can be resolved quickly, work with a professional service like National Business Helpers to get your business back on track.
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