What Is a UCC Lien?
A UCC lien is a public notice filed under the Uniform Commercial Code that gives a creditor a security interest in your business assets. When you take a merchant cash advance, the funder almost always files a UCC-1 financing statement with your state’s Secretary of State. This filing puts other creditors on notice that the funder has a claim against your receivables and potentially other business assets.
Most MCA UCC filings are blanket liens, meaning they cover all business assets including accounts receivable, inventory, equipment, and general intangibles. The scope often extends far beyond the receivables actually purchased in the MCA transaction.
How UCC Liens Are Enforced
UCC lien enforcement in the MCA context occurs through several mechanisms. The funder can claim priority over other creditors if you default and assets are liquidated. They can serve a notice of lien on your bank, which may restrict account access. They can block you from obtaining other financing since no traditional lender will advance money against encumbered assets. And in extreme cases, they can seek judicial enforcement to seize and sell business assets.
Priority and Stacking
UCC lien priority is determined by filing order. The first funder to file has the senior lien and gets paid first. This is critical when MCAs are stacked. First-position funders have the strongest claim, while subordinate funders may recover little or nothing. Understanding priority is essential for negotiating settlements because first-position funders have less incentive to settle cheaply while subordinate funders may accept significant discounts.
Challenging UCC Liens
- Procedural defects. If the UCC-1 contains errors in debtor name, address, or collateral description, the filing may be invalid.
- Over-breadth. If the lien covers assets beyond what the MCA contract authorized, challenge the scope.
- Underlying agreement is void. If the MCA is unenforceable due to usury, fraud, or unconscionability, the UCC lien falls with it.
- Unauthorized filing. If you did not authorize the filing in the contract, it can be removed.
Removing a UCC Lien
The funder can voluntarily file a UCC-3 termination statement upon payoff or settlement. Under UCC Section 9-509, if the funder refuses to terminate within 20 days after the obligation is satisfied, you can file your own termination and the funder may be liable for damages. In litigation, a court can order termination as part of a judgment. Do not assume the lien disappears automatically. You must actively pursue removal.