Without doubt, UCC liens are one of the most useful tools utilized by Merchant Cash Advance (MCA) companies when small businesses have difficulty paying for their cash advances. In this article, we explore some of the basic rules and nuances of UCC and how MCA companies use UCC to address collection of the funds which are owed to them. Importantly, we discuss the goals MCA companies have with UCC and what actions they may take against small business owners and small businesses, as well as what can also be done.
By Thomas Tramaglini, Chief Operations Officer
Partner, The Center for MCA Research
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.
When are UCC liens good and when are they bad?
It is standard practice for banks, lenders, and alternative lenders to file UCC liens on anyone who owes money to them. UCC liens are not bad. They tell the public that the borrower or seller has an interest in the assets or receivables of the debtor. The UCC lien alerts others that you or your business have taken on debt and that the creditor who filed the lien has an interest as listed.
UCC gets bad is when the client has difficulty paying back their loan or liability. Once the person or the business begins to not pay, UCC allows creditors a range of actions which they can implement which can be rather brutal to the person or business.
From the view of the MCA company.
When you begin to have trouble paying the MCA company, their actions can be brutal. Why is this? Because once the MCA company has stopped getting paid, they view you or the small business as a thief. They believe they have bought your future receivables and that you have stolen from them. When you understand that MCA companies (most) think like this, you can understand the ends that they will go to to get paid back. In most cases, cash advances are not funded by banks, or by companies that have a line with a bank, but by individual investors. These investors feel like they have been stolen from and it is in the interest of the MCA company to protect it's investors so they will use the means necessary to get paid back.
Are UCC Liens legal?
UCC liens are absolutely legal.
And, you likely have given the MCA permission to use when you completed your MCA agreement. That is, most Merchant Cash Advance agreements have clearly described procedures for allowances towards what UCC actions they will be using if the client does not pay.
On many occasions we get the question: How can they do that? The answer is simple - you gave them permission to.
UCC Actions.
So, once there is a UCC lien and creditors begin to take action, what are the common things that they can do to begin to recover their funds?
For MCA Companies, Restraining Your Funds is Critical.
Immediately following any default of a MCA agreement, the MCA company (or collections company) will begin using a set of measures which have one aim: FREEZE YOUR ACCESS TO YOUR ASSETS AND RECEIVEABLES SO THE MCA COMPANY CAN RECOVER WHAT IS OWED TO THEM.
The goal of the MCA company or its collections people is to freeze your funds to either do one of the following:
Force you into payment plans, many which are not favorable to you or your business.
Recover the funds via judgement and domestication procedures.
Get you to sign over funds held to release funds future funds to you.
Run you out of business.
NOTE TO EVERYONE SUBJECT TO UCC REMEDIATION: MCA companies want to strangle you into submission by any means possible. They know that if they can get to your funders, they can win.
MCA Companies and Their Collections People Will Send UCC-406 Letters to the People Who You Are Paid By.
406 letters are what MCA companies and their attorneys/collections firm send to people to tell them that you have defaulted on their agreements, how much you or your business owes them, and that they by law are to restrain and redirect funds to the collections firm or MCA company. From our experiences these letters freeze funds more often than the payer sending funds back to the MCA company, but the letters are quite effective.
Some businesses are more susceptible to 406 letters than others.
For instance, some businesses such as restaurants are less susceptible to 406 letters than someone or a business that is paid from health insurance companies. The bottom line is that once your payers begin to get these letters, most comply with the order under fear or retaliatory legal action.
MCA Companies and Their Collections People Will Send UCC-406 Letters to Your Personal and Business Banks.
Another common action is that the MCA company will begin to send letters to your bank (personal and business) to restrain any funds that you have in any accounts. This is regardless of whether or not you have to run payroll or pay vendors, etc. MCA companies view these funds as the receivables you are supposed to pay them and they will make every attempt to access these funds.
Are MCA Companies and Their Collections People Allowed to Freeze Your Bank Accounts?
Yes, under the Uniform Commercial Code they absolutely can.
MCA Companies and Their Collections People Will Send UCC-406 Letters to Your Credit Card Processors.
Just like with bank accounts, it is common for the MCA companies to send letters to restrain any funds you have or will have with your current credit card processors.
Other sources we have seen MCA companies attempt to restrain funds.
Payroll administrators
401K accounts
Receiverships
Retirement accounts
Trust accounts
Collections companies who think they can use UCC to make suggestions about financial moves.
On some instances, we have seen and heard where collections representatives have provided suggestions for doing things like taking a second mortgage on a primary residence, repurposing of assets, and more.
Just about every one of these knuckleheads acting like they are a financial planner has no idea what they are doing, let alone experienced or licensed to make such suggestions.
We have seen clients listen to suggestions by these people which may cause irreparable damage to someone's personal or business portfolios.
How do the MCA companies find who to restrain funds with?
This is pretty easy - when a small business owner submits bank statements or tax returns or even their Accounts Receivable list to the MCA company before funding the documents provided have a TON of information to the MCA company. We are not suggesting withholding information to MCA companies, however you should not be surprised if the MCA companies get to who they find in your bank statements or other documents which you provided. Further, many MCA companies require you submit trade references in the MCA contract which certainly adds more fuel to the fire if you default.
Do Cash Advance Companies Care About The Business or Business Owner Who Defaults?
Bottom line is no, most MCA companies do not care. They just want their money and will do whatever they can do to recover it.
Can you find out if you have your small business have a UCC lien filed against you/it?
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.
I was sued by an MCA company. Does this take the place of the UCC lien?
NO - That is, UCC liens and actions are completely independent from MCA lawsuits.
Why should we use a company like Beacon Client Solutions to deal with UCC freezes?
Beacon Client Solutions has a host of experience in working with small business owners to relieve their UCC liens. When small business owners go into UCC remediation on their own, MCA companies will take advantage of the small business owner and leave the small business owner exposed to unnecessary hazards such as default and limited curing clauses.
Caution - do not attempt to try to unfreeze your UCC lien by yourself - use a professional firm or attorney to do so.
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.