When you obtain a merchant cash advance (MCA), the funder will typically prepare and record a UCC-1 filing, creating a lien against the business entity and certain assets (e.g. equipment, vehicles, property). If your business defaults on the cash advance, both your assets and business relationships may be in jeopardy. Here’s how
What is a UCC-1 Filing?
A UCC filing (or UCC lien or UCC-1) is a financing statement that lenders and alternative funders file with the state which places a lien on the named assets to secure a loan or cash advance. UCC-1s are common when you receive any type of business loan or financing.
Generally, there are 2 types of UCC lien
- Specific collateral lien uses a single asset as collateral (e.g. a piece of equipment utilized by the business)
- Blanket lien covers many different assets, all of which can be used to settle a debt
The language and the pledged security listed on a specific collateral lien statement can vary, however, MCA companies place a lien against a business’s future receivables by using a blanket UCC lien. Doing so creates a lien against the business assets, including:
- Property
- Equipment
- Inventory
- Vehicles
- Receivables
- Chattel
- Accounts
- Letters of credit
- Securities
Before you agree to the terms of an MCA agreement, which may also involve signing a personal guarantee, it is wise to consult with an experienced MCA attorney.
How a UCC Filing Impacts Your Business
UCC liens are commonplace in business financing; however, an existing UCC-1 filing may increase your company’s credit risk because it demonstrates that
- Your business already owes money to another lender or funder
- Your business assets have been pledged elsewhere
When it comes to a merchant cash advance, if your business defaults on the MCA agreement, the funder will likely send the UCC liens to your vendors and/or customers demanding that they pay the funder directly rather than paying your business because the MCA provider purchased your future receivables. This can cause serious harm to your existing business relationships.
At the same time, funders also rely on a personal guarantee and a Confession of Judgment to seize personal and business assets in the event of default. If your business is struggling under the terms of an MCA agreement, it is wise to consult with an experienced merchant cash advance attorney to protect your interests.
How ReconcileMyMCA.com Can Help
If you have received an MCA and a lien has been placed against the business, our experienced debt relief specialists and MCA attorneys can determine whether:
- The MCA provider clearly defined what collateral has been pledged
- The funder accurately claimed the correct dollar amount of the pledged collateral
- The collateral is noted with specificity
- The filing reflects the terms of the MCA agreement
At ReconcileMyMCA.com, we regularly assist clients with resolving UCC-1 liens and reconciling their merchant cash advances. Contact our office today by completing the convenient intake form to get started.