Overview of UCC Liens and Merchant Cash Advances
When a business takes out a merchant cash advance (MCA), the MCA company often secures the advance by placing a UCC (Uniform Commercial Code) lien on the business’s assets. This gives them a secured interest in case the business defaults on repaying the advance.However, many business owners don’t realize that the UCC lien may remain in place even after the MCA is repaid in full. This can cause problems when trying to get additional financing or sell the business. Fortunately, UCC liens can be removed with the right process.
Step-by-Step Guide to Removing a UCC Lien
Here is a step-by-step guide to removing a UCC lien after repaying a merchant cash advance:
-1. Confirm the MCA Balance is Paid Off
The first step is to confirm with the MCA company, in writing, that the balance owing on the advance has been fully paid. Request a payoff letter or “Satisfaction of Obligation” document from them.This letter should clearly state that you have paid the MCA balance in full, and the company no longer has a claim on your business assets. Make sure to get this in writing rather than just a verbal confirmation.
2. Request a UCC Termination Statement
Next, formally request that the MCA company file a UCC-3 termination statement to remove their lien from your business assets. This is an official form that notifies the state that the lien is terminated.The MCA company is legally required to file this form within a reasonable time after being paid in full. Follow up if you don’t receive confirmation that it has been filed.
3. Search UCC Records
Even after the MCA company files the termination statement, you’ll want to double check that the lien removal has been properly recorded.Search your state’s UCC records online to verify the lien no longer appears. This can take a few weeks to update after the termination is filed.Check PA UCC RecordsSearch NJ UCC Records
4. Request Lien Release Letters from MCA Company
As an extra step, request an official “lien release letter” from the MCA provider. This should clearly state they have removed the lien and no longer have any security interest in your business assets.Having this letter may come in handy if any issues come up down the road. It provides solid legal proof the lien is terminated.See a sample lien release letter
-Trouble Getting a Lien Removed?
If you have fully paid off your merchant cash advance but are still running into problems getting confirmation of the lien removal, don’t panic. Here are some tips that may help resolve the issues:
- Send formal legal demand letter – Have a business lawyer draft a formal letter demanding the termination paperwork. This often lights a fire for the MCA company to take action.
- File your own termination statement – In some states, the business owner can file a UCC termination themselves if the lienholder refuses. Consult a lawyer to see if this DIY option is available.
- Threaten small claims court – Let the MCA company know you are prepared to sue them in small claims court if they do not comply with lien removal laws. Often the threat alone will prompt them to take action.
- Report them – File complaints with organizations like the FTC, CFPB, and state consumer protection bureaus. Also report them to industry associations like AMFA.
- Consult an attorney – If all else fails, partner with an experienced business or finance lawyer. They can review your situation and determine the best path forward to get the lien removed.
After the Lien is Terminated
Once you’ve received all the necessary paperwork from the MCA provider confirming the lien has been terminated, make sure to store these records safely. Keep both digital and hard copies.You should immediately see an improvement in your business credit score as the lien removal is processed. This will make it easier to secure financing, loans, and credit cards going forward.If you plan to sell your business in the future, buyers will definitely want to see proof that any prior liens on the company’s assets have been terminated. So holding onto the lien release documentation is essential.
Avoiding UCC Lien Issues from the Start
While this article focused on “after the fact” lien removal, it’s always best to avoid problems proactively. Here are some tips when first securing merchant cash advances:
- Vet MCA companies carefully and read all contracts thoroughly before signing
- Understand exactly what assets they will lien and the process to remove
- Be conservative with advance amounts – only take what your business can realistically pay back on time
- Consult a lawyer to review the MCA agreement if you have any concerns
- Ensure there is a clear path to terminating the lien upon repayment
Following these best practices will help prevent UCC lien headaches down the road. But if you do find your business stuck with a lingering lien after an MCA payoff, use the steps outlined here to get it removed.