I Paid Off My Business Loan But The UCC Lien Remains – What Should I Do?
If you took out a business loan and have recently paid it off, you may be wondering why there is still a UCC (Uniform Commercial Code) lien associated with the loan showing up on your business credit report or records. This can be confusing and concerning if you thought paying off the loan would remove the lien. Here’s a breakdown of what’s going on and what you need to do about the remaining UCC lien.
What is a UCC Lien?
A UCC lien, also known as a UCC financing statement, is a legal filing that gives the lender a security interest in the collateral put up for the loan until the loan is fully repaid. The collateral acts as security on the loan – it’s something the lender can seize and sell if the loan terms are breached.With a business loan, common collateral includes business assets like equipment, inventory, accounts receivable, etc. By filing a UCC lien, the lender puts other creditors on notice that they have a priority claim on the collateral if the business defaults.So in short – a UCC lien allows the lender to stake a claim on the business’s assets during the loan term.
-Why Does the UCC Lien Remain After I Paid Off My Loan?
In most cases, the UCC lien remains on your business credit report and records after paying off the loan because the lender has not yet released it. They likely will release and terminate the UCC lien, but don’t always make this a priority right away.Releasing a lien is more of an administrative task – as long as the loan is fully paid, the lien is no longer actively staking a claim on the collateral. But the lender still needs to file paperwork to officially remove it from the records.Some reasons a lender may not release the lien immediately:
- They want to ensure all final payments clear before releasing collateral
- There’s a delay in communicating lien releases to their administrative staff
- Removing liens are low priority compared to making new loans
- They drag their feet hoping you’ll take out another loan
So in many cases, the UCC lien continues to show up simply because the lender hasn’t gotten around to releasing it yet.
How Do I Get the Lien Removed from My Business Credit Report?
To get the UCC lien fully removed, you need the lender to file a UCC-3 termination statement with the state. This is the official record releasing their claim on the collateral and clearing the lien from your business credit report and state records.Here are the key steps to make this happen:
- Confirm the loan payoff – Contact the lender and make 100% sure they have a record of the loan being fully paid. Get written confirmation if possible.
- Request lien release – Explicitly ask the lender to file a UCC-3 termination and release the lien. State that the loan is fully paid per your records on X date (keep a paper trail).
- Follow up – If they do not promptly agree to file the UCC-3, follow up in writing to reiterate your request. Most lenders will take care of this, but be persistent if needed.
- Check status – After allowing reasonable time for them to process your request (e.g. several weeks), check your business credit reports from sources like Experian or Dun & Bradstreet. The lien release can take around 30 days to reflect in these records.
- Escalate or seek legal options – If the lender remains unresponsive to releasing the lien, you may need to get legal help. A business attorney can help draft sterner letters insisting on compliance with UCC guidelines.
So in summary – be persistent with the lender, get written confirmation, and inspect your business credit reports periodically. The lien release should eventually show up if the lender is following proper UCC protocols.
-Why Should I Get the Lien Removed if the Loan is Already Paid Off?
Even though a UCC lien has no actual impact after paying off the related loan, having this show up on your business credit history can still cause a few issues to consider:
- Getting approved for financing – New lenders may think you still owe money if they see an outstanding UCC lien, negatively impacting your ability to get approved for loans or credit lines.
- Dealing with vendors – Vendors may also question whether you still have unpaid debt and change terms as a result.
- Selling the business – Buyers can get nervous about outstanding liens during acquisition deals, even if already paid. It can complicate negotiations.
- Future collateral – If you put up new collateral for a future loan, prior liens could potentially link back to that collateral.
For these reasons, it’s in your best interest to get the UCC lien fully released to “clean up” your business credit report.
Can I File a Lien Release Myself?
No, only the original lender that filed the UCC financing statement can also terminate the lien. This is done by filing a UCC-3 form.As the business owner who took out the loan, you do not have authority to directly edit UCC records related to your own business.Some business owners consider filing a separate UCC-3 themselves to try cancelling the lien, but this would have no impact since lenders have priority on these records for loans they issued.Your only options are to persistently request the lien termination from the lender, then escalate matters if they refuse to comply. Getting a business attorney involved via official letters can often resolve non-responsive lenders.
Other Steps to Take After Paying Off a Business Loan
Getting the related UCC lien released is just one of the administrative tasks to handle after paying off financing:
- Update business credit reports – In addition to the lien, be sure your loan balance also shows $0 across business credit reports from sources like Experian, Equifax, Dun & Bradstreet, etc.
- Get payoff letter – Request an official payoff letter from the lender confirming the loan has a $0 balance, keep this for your records.
- Cancel auto-payments – Stop any automated payments that may still be trying to pay down a fully paid loan.
- Update books – Remove the loan from your balance sheet and other bookkeeping.
Taking these steps ensures you have fully closed out the loan and reflect that across all business records. Tying up these loose ends can prevent potential issues when applying for financing, partnerships, and other growth opportunities.
-When to Speak with a Business Attorney
If you have persistently tried and failed to get the lender to file a UCC-3 termination statement releasing your lien, it’s probably time to have a business attorney take over.A strongly worded letter from an attorney citing relevant UCC and state commercial codes often resolves non-responsive lenders. Lawyers also know how to properly escalate matters if the lender continues violating lien release obligations.Speak to a business attorney if:
- The lender repeatedly ignores or drags their feet on your lien release requests
- It has been over 45 days since requesting release with no action
- Your business is facing issues like loan/credit denials due to the outstanding lien
Fortunately, most lenders will promptly comply with UCC guidelines and terminate liens once loans are fully paid. But legal help can force action if needed.
The Bottom Line
If a UCC lien still reflects on your business credit report after repaying the related loan, it likely just means the lender has not gotten around to filing termination paperwork yet. But it’s in your best interest to ensure the lien gets formally released ASAP to “clean up” your credit profile.Be persistent in requesting a UCC-3 filing from the lender, then verify the lien disappears from credit records within approximately 30 days. If the lender refuses to cooperate, a business attorney can insist on them meeting UCC compliance standards.Taking these steps will ensure no outstanding liens from repaid loans continue weighing down your business credit and financial options. You want your reports reflecting the most accurate and up-to-date financial picture possible.
-Resources
For further reading, here are some additional resources on resolving UCC liens:
- This YouTube video explains more about lien releases:
- Here is an article from the SBA going deeper on UCC liens:
https://www.sba.gov/blog/ask-sba-what-ucc-financing-statement
- This site provides templates to request lien releases: