The Uniform Commercial Code (UCC) is a group of laws that relate to commercial transactions that are accepted by all states in the United States. UCC filings are used by lenders and Merchant Cash Advance companies to announce their rights to collateral or liens on a loan or tangible property. This article aims to build a better understanding of what UCC liens are in the context of MCA companies.
By Thomas Tramaglini, Chief Operations Officer
What is a UCC Lien?
A UCC filing or lien are used by lenders and MCA companies to announce their rights to collateral, liens, or a secured interest. In the context of a Merchant Cash Advance, MCA companies will secure your receivables as a form of collateral using the Universal Commercial Code.
A UCC is nothing more than a legal form filed with the state Secretary of State (SOS) that announces that the lender or MCA provider has a secured lien on the business. Such actions allow the lender or MCA provider to seize and foreclose on the collateral or funds if the small business owner fails to pay what is due.
When is a UCC-1 filed?
UCC-1 filings typically happen when a loan is first originated. If the borrower has loans from more than one lender, the first lender to file the UCC-1 is first in line for the borrower's assets. This motivates lenders to file a UCC-1 as soon as a loan is made.
The first UCC-1 filer holds a first-position lien, the second filer has a second-position lien and so forth. Usually, the first-position lien must be completely satisfied before the second-position lien holder can receive any remaining collateral. For instance, the SBA requires a first position lien, as well as factoring companies.
In some cases, multiple lenders might work out an arrangement that leaves more collateral for junior lienholders. However, lenders typically won’t allow a borrower to reuse the same collateral for multiple loans.
Most lenders and certainly MCA companies will require UCC-1 filings and collateral to secure their loans, and you don't want to spread your assets across multiple lenders. In the event you can’t repay your loans, lenders could seize a significant portion of your personal and business assets.
Two types of UCC-1 filings
UCC liens against specific collateral:
This type of lien gives creditors an interest in one or more specific, identified assets rather than an interest in all the assets owned by a business. These are most often used for inventory financing or equipment financing transactions.
UCC blanket liens:
This type of lien gives a creditor a security interest in all of the borrower's assets. It’s commonly used for loans from banks and alternative lenders, as well as loans guaranteed by the Small Business Administration (SBA). Lenders prefer blanket liens because they’re secured by multiple assets and are, therefore, less risky. In some cases, a blanket lien might carve out some assets that will be exempt from the lien. This might occur if the remaining assets are more than sufficient to reimburse the lender, should a default occur.
What should you do if you are in danger of defaulting or in default on your Merchant Cash Advance?
Understand what a UCC lien is
Review the UCC section on your Merchant Cash Advance Agreement
Search for your UCC Lien on your state's secretary of state website
Get connected to advisors who are experienced so you are able to handle any UCC actions
Connect with an attorney who can help you in the venue of choice by the MCA company or creditor
Contact Beacon Client Solutions to better understand your situation and how we can help you.
Dr. Thomas Tramaglini is the Director of Operations and Negotiation for Beacon Client Solutions, a company that supports small businesses on a host of fronts, especially MCA debt. Thomas has been a small business owner for many years, as well as held leadership positions in several organizations and companies. Thomas holds a B.A. in History, as well as Masters and Doctorates in Organizational Leadership from Rutgers University, The State University of New Jersey.
Disclaimer: Beacon Client Solutions is not an accountancy, or a law firm. We are business consultants. While Beacon works with outstanding attorneys and accountants, we cannot and do not provide legal or tax advice. All of our work is connected to those who are legally certified to give such advise. Beacon does have a longstanding body of work in MCA resolution and understands what small business owners deal with, specific to MCA. Beacon Client Solutions serves clients in all 50 states, Puerto Rico, Mexico and Canada.