One of the tactics that Merchant Cash Advance (MCA) companies use to go after small business owners who have had trouble paying back or defaulted on a Merchant Cash Advance is by using the Uniform Commercial Code or UCC. Using various actions allowed under the UCC umbrella, MCA companies quickly look to force small business owners into decisions which ultimately put them in a harsher place than they are or close their business. This article aims to describe things associated to UCC liens, what to know about UCC, as well as what to do if your small business has one filed against you.
By Thomas Tramaglini, Chief Operations Officer
What is the Uniform Commercial Code (UCC) and What is a UCC lien?
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.
And 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 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.
How does a small business owner know if a UCC lien has been filed against him or her?
The answer is pretty simple: Look!
The average person can look up UCC liens from Merchant Cash Advance companies by going to their state's secretary of state website and searching for the UCC search engine. Some states make it harder to find the UCC lien record so you can always use our UCC search tool for free.
How can a Merchant Cash Advance company just file a UCC against you?
In most cases, small business owners who have taken a Merchant Cash Advance have given the Merchant Cash Advance company permission to invoke UCC measures once payments have been missed. Most of the time, when a client defaults UCC is already in action.
At the bottom of this article is a sample of permission which is typical in most agreements, with words varying here and there but the overall ideas are basically the same in each agreement. Basically each agreement states that the UCC governs agreements such as the agreement you have signed and that they may enforce rules such as they own your receivables if you default and that you agree that the MCA company can collect those funds instead of you either keeping in your bank account or from your customers.
What is the goal of a UCC lien?
When MCA companies file a UCC lien, they either 1) hope to get you to settle with the MCA company, repaying them with the same or similar terms and amount originally agreed to. In some cases, the UCC settlements leave little or no room for error. 2) The second goal is because if you do not succumb to the UCC lien's actions they will sue you and hope to get a judgement, ultimately allowing the MCA company to recover assets, money, and more from you (garnish future earnings, etc).
UCC liens can be brutal for small business owners. From our experiences, some MCA companies and their attorneys will use UCC to freeze funds of the client, and will not release any of the funds unless fully paid off When the small business owner cannot settle for full balance, the MCA company will take what is frozen and run the small business owner into the ground.
How can a Merchant Cash Advance company just file a UCC against you?
Because the MCA company has their agreement signed by the small business owner, and in most cases the small business owner has paid the UCC filing fee in advance, the MCA company can file the UCC.
While UCCs are a tool used to protect the MCA companies from situations where they could lose their money, in many cases the UCCs are filed inappropriately or used incorrectly but clearly, the MCA company is coming for you if they file the UCC.
Once a UCC has been filed against you, what do the MCA companies, their collections companies, and their attorneys next steps?
There are a couple of actions that are typical for when an MCA company has filed the UCC.
1) the MCA company will send UCC 406 letters to customers, suppliers, vendors, banks and credit unions, and anyone who pays the small business owner. Some of these small business owners find out there has been a UCC filed against them when they do not get paid, making their situation tougher than it was.
2) the UCC lien and potential freeze will come with threats to settle or see funds frozen, causing many small business owners to agree to the terms, ultimately defaulting on the settlement and losing their ability to defend themselves in case of a judgement.
3) file a lawsuit against the small business owner. Simply put, the MCA company will sue the business owner hoping for an unabated judgement, hence giving the MCA company the permission to collect your assets and more within the laws of the court.
A UCC lien has been filed against you. What should you do?
If you have a UCC lien, you should immediately retain a company like Beacon Client Solutions who have experienced experts and attorneys on staff who can handle your needs. Just consulting with our team provides you with several potential defenses against the UCC actions and ultimately aimed at removing the UCC lien. To date, our firm has overseen the release of hundreds of UCC liens for small business owners in all 50 states.
Why is a better choice to use a consultant and/or law firm to handle your UCC or Merchant Cash Advance lawsuit?
Simply put, the MCA law firms and collections companies are just as bad as the MCA companies. People need help so they are not left with terms that they cannot handle or where they are not protected by the law.
Our goal is to bridge the gap between the MCA company's position and that of our client, protecting him/her/their business in the meantime. We have a successful record of not only doing so, but putting business owners on the high ground when in many cases there is no leverage to be had.
MCA attorneys and collections firms do not want you to seek help. It is easy to beat up people when they are isolated and do not have the ability to protect themselves. By retaining a firm like ours, rest assured, you will see aggressive, caring, and professional services regardless of the situation or amount of debt.
However, do not not act - cause you will pay way more than you owe the MCA company.
Traditional UCC clause from a real Merchant Cash Advance agreement.
VI. PLEDGE OF SECURITY.
21. Acknowledgment of Security Interest and Security Agreement. The Future Receipts sold by Merchant to Purchaser pursuant to this Agreement are "accounts" or "payment intangibles" as those terms are defined in the Uniform Commercial Code as in effect in the state in which the Merchant is located (the "UCC") and such sale shall constitute and shall be construed and treated for all purposes as a true and complete sale, conveying good title to the Future Receipts free and clear of any liens and encumbrances, from Merchant to Purchaser. To the extent the Future Receipts are "accounts" or "payment intangibles" then (i) the sale of the Future Receipts creates a security interest as defined in the UCC; (ii) this Agreement constitutes a "security agreement" under the UCC; and (iii) Purchaser has all the rights of a secured party under the UCC with respect to such Future Receipts. Merchant further agrees that, with or without an Event of Default, Purchaser may notify account debtors, or other persons obligated on the Future Receipts, on holding the Future Receipts of Merchant's sale of the Future Receipts and may instruct them to make payment or otherwise render performance to or for the benefit of Purchaser.
22. Financing Statements. Merchant authorizes Purchaser to file one or more UCC-1 forms consistent with the UCC to give notice that the Sold Amount of Future Receipts is the sole property of Purchaser. The UCC filing may state that such sale is intended to be a sale and not an assignment for security and may state that Merchant is prohibited from obtaining any financing that impairs the value of the Sold Amount of Future Receipts or Purchaser's right to collect same. Merchant authorizes Purchaser to debit the Approved Bank Account for all costs incurred by Purchaser associated with the filing, amendment or termination of any UCC filings.
23. Security. As security for the prompt and complete performance of any and all liabilities, obligations, covenants or agreements of Merchant under this Agreement, now or hereafter arising from, out of or relating to this Agreement, whether direct, indirect, contingent or otherwise (hereinafter referred to collectively as the "Merchant Obligations"), Merchant hereby pledges, assigns and hypothecates to Purchaser and grants to Purchaser a continuing, perfected and first priority lien upon and security interest in, to and under all of Merchant's right, title and interest in and to the following (collectively, the "Secured Receipts"), whether now existing or hereafter from time to time acquired:
all accounts, including without limitation, all deposit accounts, accounts-receivable, and other receivables, chattel paper, documents, equipment, general intangibles, instruments, and inventory, as those terms are defined by Article 9 of the UCC, now or hereafter owned or acquired by Merchant up to the value of the Sold Amount of Future Receipts; and
all Merchant's proceeds, up to the value of the Sold Amount of Future Receipts, as that term is defined by Article 9 of the UCC.
24. Termination of Pledge. Upon the performance by Merchant in full of the Merchant Obligations, the security interest in the Secured Receipts pursuant to this Pledge shall automatically terminate without any further act of either party being required, and all rights to the Secured Receipts shall revert to Merchant. Upon any such termination, Purchaser will execute, acknowledge (where applicable) and deliver such satisfactions, releases and termination statements, as Merchant shall reasonably request.
25. Representations with Respect to Secured Receipts. Merchant hereby represents and warrants to Purchaser that: the execution, delivery and performance by Merchant of this Pledge, and the remedies in respect of the Secured Receipts under this Pledge (i) have been duly authorized; (ii) do not require the approval of any governmental authority or other third party or require any action of, or filing with, any governmental authority or other third party to authorize same (other than the filing of the UCC 1's); (iii) do not and shall not (A) violate or result in the breach of any provision of law or regulation, any order or decree of any court or other governmental authority, or (B) violate, result in the breach of or constitute a default under or conflict with any indenture, mortgage, deed of trust, agreement or any other instrument to which Merchant is a party or by which any of Merchant's assets (including, without limitation, the Secured Receipts) are bound.
26. Further Assurances. Upon the request of Purchaser, Merchant, at Merchant's sole cost and expense, shall execute and deliver all such further UCC-1s, continuation statements, assurances and assignments of the Secured Receipts and consents with respect to the pledge of the Secured Receipts and the execution of this Pledge, and shall execute and deliver such further instruments, agreements and other documents and do such further acts and things, as Purchaser may request in order to more fully effectuate the
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 Master’s 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 our work is connected to those who are legally certified to give such advice. 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.
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