UCC Liens and Merchant Cash Advances
An MCA UCC lien is a public UCC-1 filing that records the funder's claim on your future sales and any other assets the contract names. After the advance is paid, the funder should file a UCC-3 to end it.
Worried an existing lien will block new funding? Many funders still review the file, and our team knows which. Apply now. Applying won't affect your credit.
Who should read this: owners who found a UCC filing on their business, and brokers checking a file's liens.
Cost, credit, speed and stacking
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Credit
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Stacking
Why do merchant cash advance funders file UCC-1 statements?
Funders file UCC-1s to give public notice of their claim on the bought sales and any collateral.
Article 9 of the Uniform Commercial Code covers sales of accounts as well as secured loans (section 9-109). So a filing helps set the funder's place in line ahead of later claims. Other funders run UCC searches, which is one way they spot existing positions.
A lien from a funder still being paid is also a position. So a new advance is usually a Second position. After a Consolidation, every paid-off funder should file a UCC-3.
What is a 9-406 notice?
A 9-406 notice is a written notice based on UCC section 9-406. It tells the business's customers to pay the funder instead of the business.
Once an account debtor receives a proper notice, paying the business may not discharge its obligation. Some funders send these notices after a claimed default, which can disrupt customer relationships. It's a serious step and a reason to talk to a lawyer.
What do funders look at besides your UCC liens?
Funders base an offer mainly on your business bank statements, not on collateral. They usually review:
How do you remove a UCC filing after payoff?
Once the debt is paid, ask the secured party to file a UCC-3 termination. UCC section 9-513 covers the end of a lien.
Once the debt ends and the debtor sends a signed demand, the secured party must file or send a termination. It generally has 20 days. Keep the payoff letter and confirmation until the termination appears on the state's UCC search.
The Stacking guide covers how a search reveals a stack.
How an MCA UCC lien reads to the next funder
A UCC filing tells a new funder that someone else claims the same sales. That can mean an open advance or a limit on new funding.
The new funder reads the filing alongside the statements.
Blanket liens on all assets
Some filings describe collateral broadly, covering all assets or all receivables. A broad filing from an active funder weighs more than a narrow one.
A bank credit line that already covers everything
A bank line of credit often comes with a blanket lien. An advance funder behind it's buying receivables the bank also claims.
Asking the bank to subordinate or consent
Some new funders ask whether the bank will subordinate or consent. Many banks won't, and the loan agreement may bar other financing.
Covenants on other financing in the bank agreement
Before taking an advance behind a bank line, read the bank agreement's covenants on other financing. Breaching them can put the line in default.
Equipment financing with a narrow filing
An equipment finance company usually files only on the financed machine. That filing rarely blocks an advance, though funders still note the payment.
What lien red flags should make you stop?
- The lien covers all assets when you were told it covered receivables only.
- A paid-off funder won't file a UCC-3 termination.
What else do owners ask?
What is an MCA lien?
A UCC-1 filing that records the funder's claim on the future sales it bought, and on any other assets the contract names.
Does a merchant cash advance UCC filing stay after payoff?
It can, until the funder files a UCC-3 termination. Ask for it with your zero-balance letter.
What should you read next?
- UCC-1 financing statement
- UCC-3 termination
- find UCC filings on my business
- UCC filing and future bank financing
Liens tie into a few other topics worth reading: UCC filings after a consolidation, what a blanket lien covers and taking a second position advance.
Lien questions
Owners who found a filing on their business usually ask these.
Does a UCC lien hurt my business credit?
A UCC filing is a public record. Banks and funders will see it, and it signals debts you already have. It's not a judgment. It can make new financing harder until it's terminated.
How do I find UCC filings on my business?
Search the secretary of state's UCC database in the state where the business is organized. Most states offer online searches. Brokers and funders run the same search.
What should I do if a paid-off funder won't terminate its UCC filing?
Send a written demand for termination, keep proof of payoff, and allow the time the statute provides. If the funder still doesn't act, a business attorney can advise on the remedies. Keep all correspondence.
What does an open lien do to a new offer?
Example: an open UCC-1 from a first funder with $18,000 still owed. A new funder offers $50,000 but requires the old balance paid at funding, so net cash is $32,000. At a 1.38 factor the payback is $69,000, a cost of $19,000, or about $0.59 per new dollar. Ask for a payoff letter early, and make sure the old filing is terminated after payoff.
Questions owners ask about this
Why do MCA funders file a UCC-1?
To put their claim on public record.
How do I remove a UCC filing after payoff?
Ask the funder to file a UCC-3 termination, and check the state's records after.
What is a blanket lien?
A filing that covers all business assets, not just receivables.
Sources
- UCC section 9-109, scope of Article 9, including sales of accounts
- UCC section 9-406, discharge of account debtor and notification
- UCC section 9-513, termination statement
Afterfirst is not a funder; all offers are subject to funder underwriting.
Clearing the lien after payoff
- Get a payoff letter and pay the exact amount it names.
- Ask for a zero balance letter once the payment clears.
- Ask the funder to file a UCC-3 termination. The UCC gives a secured party 20 days to file after an authenticated demand when nothing is owed.
- Search your state's UCC filings to confirm the termination shows.
- Keep all three documents with your books.
A lien that stays on file after payoff can slow your next funding. See whether an MCA is secured.
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