What is a UCC Lien and How Does It Impact Your Business Loan
Understanding UCC Liens and Their Impact on Business Loans
Have you heard of a UCC Lien and wondered how it affects your business? A UCC lien is a legal claim that a lender can place on your business assets if you default on a loan or agreement. It stands for Uniform Commercial Code—the rules that govern business transactions in the U.S. When you take out a loan, especially in business financing like Merchant Cash Advances (MCAs), the lender may file a UCC-1 Financing Statement. This makes it known that the lender has a legal right to your business assets if you can’t repay your loan.
Why does this matter? Once a UCC lien is filed, it becomes public record. Potential investors, clients, and creditors will know that your assets—like your receivables—are tied up in a debt agreement. This can hurt your ability to borrow more or get new funding. Example: Suppose you run a restaurant and took out a merchant cash advance (MCA). If your revenue starts dropping, and you default, the MCA company can file a UCC lien on your future credit card sales. This makes collecting that money impossible until the lien is resolved.
But here’s the thing—UCC liens are not the same in every state. For example, in New York, lenders may use them to freeze your receivables quickly. Meanwhile, states like California or Ohio allow easier lien filings but provide different defense options. If your lender files a UCC lien, they might freeze your bank accounts or notify your customers, telling them to pay the lender instead of you! That means no money for your day-to-day operations, right when you need it the most.
Let’s break down how a UCC lien can be used to enforce payment. In Pennsylvania, for instance, a lender can file a lien without warning. They don’t have to take you to court first. But, if you’re based in Florida, lenders need more steps before they can freeze assets. MCA defense lawyers often challenge these liens. They argue that the MCA isn’t a loan—it’s a future receivables sale. And if that contract was misleading or improperly worded, the entire deal could be voided, and the UCC lien lifted.
MCA defense lawyers will look closely at how the lien was filed. If there were any errors—such as wrong descriptions of assets or incorrect filing processes—the lien could be challenged and removed. To win, defense lawyers also rely on state-specific laws. In New York, the ban on out-of-state Confessions of Judgment (COJ) has forced lenders to rely more on UCC liens. Understanding these state-by-state variations is key to your defense.
Did you know that in Texas, MCA lenders have a hard time enforcing UCC liens if the MCA agreement doesn’t explicitly define the receivables? An experienced attorney can exploit this gray area to get the lien lifted. So, why should you care about partial wins? Even if your lawyer can’t get the entire lien removed, they may be able to negotiate for a partial release of assets, allowing you to regain control of part of your business while working out the rest.
A great lawyer will use legal strategies to delay the enforcement of UCC liens while negotiating a settlement. Every state has nuances. In Florida, it takes longer to enforce a lien—giving you more time to get your financial house in order. In Ohio, the courts sometimes view MCAs differently. By arguing that the MCA is structured too much like a loan, lawyers can persuade the court to treat it under loan laws, which gives businesses more defenses.
As seen in many cases, MCA defense lawyers are able to turn the tide, either by negotiating settlements for less than what’s owed or vacating the lien entirely. Sometimes, they use bad faith arguments, showing the lender acted unfairly or deceptively. Another powerful defense: If your lender filed the UCC lien before you even defaulted, they may have violated due process rules. These are key legal concepts that your lawyer will explore.
Real-life example: In California, a lawyer challenged an MCA contract, showing the UCC lien violated the Truth in Lending Act (TILA). The court agreed, the lien was lifted, and the client walked away with no frozen assets. State laws matter a lot here. In Delaware, for instance, UCC liens are relatively easy for lenders to file—but hard to enforce without solid documentation. Your attorney will dig into these details to weaken the lender’s position.
Pro Tip: If you’re in a state like Utah, where lien filings are rapid, it’s critical to contact a lawyer before a default happens. Preemptive moves can sometimes stop a lien from being filed in the first place. How do you avoid UCC liens? Proactivity. Always have a lawyer review your MCA agreements before you sign them. Watch out for terms that allow lenders to file liens even if you haven’t missed a payment yet.
To win against MCA companies, you need lawyers who know how to leverage state-specific defenses. For example, in Colorado, filing errors by the lender can invalidate the lien entirely. Google state-specific defenses like this. If you find yourself with a UCC lien hanging over your business, don’t panic. A lawyer specializing in MCA defense can assess the lien’s validity and find ways to weaken or remove it—buying you time and options to keep your business alive.
It’s critical to fight every legal step. Even if you can’t get the entire lien lifted, your lawyer might secure enough of a partial victory to keep your business running and your assets in your hands. That’s a win worth fighting for.