Small business owners who have faced challenges with merchant cash advances or alternative loans often find themselves dealing with the consequences of how predatory lenders utilize the Uniform Commercial Code to recover owed funds. These practices can have a significant negative impact on both their business and personal finances.
It is crucial for small business owners to familiarize themselves with UCC liens, understand what they entail, and be aware of the potential actions creditors may take if they struggle to meet stringent terms.
This article outlines UCC filings, distinguishes them from UCC actions, and provides insight into what small business owners can anticipate if they face enforcement under the Uniform Commercial Code.
By Thomas Tramaglini, Chief Operations Officer
Partner, The Center for MCA Research
The Impact of UCC Liens and Actions on Your Business
The Uniform Commercial Code, abbreviated as UCC, comprises a set of laws that govern business transactions uniformly across various states.
A UCC lien filing, known as a UCC lien or UCC-1 lien, involves submitting a financing statement to the secretary of state when small business loans are taken by borrowers.
Basically, the UCC filing indicates that the lender has established a lien on one or more of your business assets. For example, with an equipment loan, a specific collateral lien is typically placed on the equipment used to secure the loan.
When dealing with an unsecured loan or a merchant cash advance, the lender might opt for a blanket UCC filing or blanket lien, which encompasses all of your company's assets, including revenue streams and future receivables.
Additionally, many lenders, including merchant cash advance providers and servicers of alternative loans often require a personal guarantee, thus making the business owner personally responsible for the debt if your business fails to repay it.
What is a UCC Lien?
Lenders and MCA companies utilize UCC filings or liens to assert their rights to collateral, liens, or a secured interest. In the realm of Merchant Cash Advance, MCA companies secure your receivables as collateral through the Universal Commercial Code.
A UCC lien is essentially a legal document lodged with the state Secretary of State (SOS) to declare that the lender or MCA provider holds a secured lien on the business. These measures empower the lender or MCA provider to take possession of and foreclose on the collateral or funds in case the small business owner defaults on payments.
The Effects of a UCC Lien on Your Business
It's common to come across UCC liens in commercial lending, so it shouldn't come as a surprise if you discover one on your business credit reports following the acquisition of a merchant cash advance or any other form of business financing.
A UCC filing does not imply any wrongdoing on your part, so it won't directly impact your business credit scores. Nonetheless, if you intend to seek credit in the future, lenders might hesitate to approve your application. This is particularly true if there is a blanket UCC filing in place.
This is because your current creditor has signified that they can assert a claim on one or more of your assets in the event that you are unable to meet your financial obligations. If it involves just one asset for a specific loan like equipment financing, it simply means that you cannot use that asset as collateral for another loan while the original one remains unpaid.
Therefore, although UCC liens do not have a direct impact on your credit scores, they can influence your overall creditworthiness.
UCC Actions: A useful tool for MCA and alternative loan predators.
When a small business fails to meet their MCA or alternative loan obligations, these predatory organizations will most definitely begin UCC actions against the business.
If you are unable to repay a merchant cash advance or alternative loan, the provider might even reach out to your existing customers and demand payment from them for the goods or services you have supplied, freeze your bank accounts, restrain your processors, and more. This is because your customers have essentially bought your future accounts receivable, making their future payments to you an asset subject to the UCC lien.
If such a situation arises, it could severely harm your relationship with your customers and create obstacles in continuing your business operations.
It is important to note that MCA companies show indifference towards:
The business owner.
The business going bankrupt.
The negative impact their correspondence and actions may have on the reputation of the business, its owners, and their family.
Whether the business owner or their family struggle financially.
What is a UCC Action?
A UCC action is when an MCA company chooses to enforce the actions available to begin to recover the funds that you owe them.
UCC actions can include:
Freezing your bank accounts (personal and business).
Restraining your ACH and credit card processor(s).
Stopping your PayPal, Venmo, CashApp, and Zelle from funding.
Holding your payroll from running.
Harassing your customers or vendors with nasty letters.
Freezing funds (and redirecting the funds to the MCA company) coming from your vendors or customers.
These actions can be brutal and destroy your business.
Is a UCC Action Legal?
Indeed, a UCC lien is completely lawful, and you probably consented to its utilization and enforcement in your agreement.
Is a UCC Action a lawsuit?
No, UCC liens and actions can and are filed without any legal action and usually are independent of any lawsuit.
What is important however is that usually the MCA company will not be able to collect on liens without a court order. For instance, if an MCA company freezes a person's bank account or their business bank account, while the MCA company does not have to release the funds, in order for them to recover the funds they do have to get a judgement via the court system.
Handling UCC liens and actions are what we do.
When you or your business face UCC actions you need an experienced team to deal with what is going on.
Our team gets asked two questions regularly:
1 - Can you get the job done?
Our clients can rely on us to effectively accomplish the task at hand. With our vast experience and outstanding legal team, we are ready to address lawsuits, brokers, illicit activities, UCC liens, and any obstacles posed by MCA companies and their collection agents.
2 - What is the cost?
Our pricing is based on the level of legal support needed for your case. In most cases, we are 15%-20% more affordable than deceptive settlement companies, aiming to provide greater savings compared to handling your situation without our assistance. We aim to deliver economical options for individuals, businesses, and more.
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.
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