How to Remove a UCC Lien from Your Business After Merchant Cash Advance Repayment
What is a UCC Lien?
A UCC lien, short for Uniform Commercial Code lien, is a legal claim that a creditor files against a debtor’s assets. It gives the creditor a security interest in the debtor’s property until the debt is repaid in full.UCC liens are commonly used in business financing transactions, such as merchant cash advances. When a business takes out a merchant cash advance (MCA), the MCA provider will often file a UCC lien against the business‘s assets as collateral for the advance.
How UCC Liens Work
Here’s a quick overview of how UCC liens typically work in the context of merchant cash advances:
- The business applies for and receives a merchant cash advance from an MCA provider.
- As part of the MCA agreement, the provider files a UCC-1 financing statement, which creates a lien against the business’s assets.
- The lien stays in place until the MCA is paid back in full, plus any fees and interest.
- Once the MCA is repaid, the provider is supposed to file a UCC-3 financing statement amendment to terminate the lien.
Seems simple enough, right? Well, not always…
The Problem: Leftover UCC Liens
One common issue businesses face after repaying a merchant cash advance is that the UCC lien filed by the provider doesn’t always get removed right away – or at all.There are a few reasons this can happen:
- The MCA provider forgets or fails to file the UCC-3 termination
- There’s a delay in processing the termination paperwork
- The provider goes out of business or disappears before removing the lien
- Clerical errors prevent the lien from being properly terminated
Regardless of the cause, a leftover UCC lien can spell trouble for a business. It can:
- Damage your business credit scores and ratings
- Make it harder to get approved for new financing and credit
- Scare off potential investors, partners, and customers
- Create the false impression that you still owe money on the advance
Bottom line? You don’t want outdated UCC liens lingering on your business‘s public record. So let’s talk about how to get rid of them.
How to Remove a UCC Lien After Repaying an MCA
Step 1: Confirm the MCA is Paid Off
First things first – make absolutely sure you’ve repaid the merchant cash advance in full. Check your records, bank statements, and any payoff confirmation from the provider.If there’s even a small balance left on the advance, the provider has the right to keep the UCC lien in place. So you’ll need to pay off any remaining amount before you can get the lien removed.
Step 2: Contact the MCA Provider
Assuming the advance is fully repaid, your next step is to reach out to the MCA provider and request that they terminate the UCC lien.Ideally, you‘ll want to make this request in writing, either by email or certified mail. Clearly state that the advance has been paid in full and you’re requesting removal of the UCC-1 financing statement associated with it.Be sure to include key details like:
- Your business name and contact info
- The provider’s name and contact info
- The original UCC filing number
- The date the advance was paid off
- A copy of any payoff confirmation or letter
If you have a good relationship with the provider and they’re responsive, they should file the termination paperwork with the appropriate government office (usually the Secretary of State) within a reasonable timeframe. In some states, they‘re legally required to do so within a certain number of days after receiving your request.
Step 3: Follow Up and Confirm Termination
After you‘ve requested termination of the UCC lien, don‘t just assume it will happen. Follow up with the MCA provider to confirm they‘ve filed the necessary paperwork.You can also search your state’s UCC database (often available online through the Secretary of State’s website) to see if the termination has been recorded. If it has, you should see a UCC-3 financing statement amendment marked as “Termination” listed under your business name.It’s a good idea to keep following up with the provider until you’ve confirmed the lien termination is on file. Be polite but persistent – it’s in your business’s best interest to get this taken care of ASAP.
What If the Provider Won’t Terminate the Lien?
In an ideal world, every MCA provider would promptly file a UCC-3 termination as soon as they receive a payoff and request to do so. But unfortunately, that doesn’t always happen.Some common scenarios businesses face:
- The provider agrees to terminate the lien but never actually does it
- The provider ignores or refuses termination requests
- The provider has gone out of business or disappeared
If you find yourself in one of these situations, you may need to take additional steps to get the lien removed. Here are a few options:
Escalate Within the Company
If your initial requests to terminate the lien have gone unanswered, try escalating the issue within the MCA provider‘s company. Look for a supervisor, manager, or executive you can reach out to. Clearly explain the situation and provide copies of your previous termination requests.Sometimes a nudge from higher up the chain of command is enough to get things moving.
File a Lien Termination Yourself
In some states, if a creditor fails to file a termination within a certain timeframe after receiving a payoff, the debtor can file their own UCC-3 termination statement.For example, in California, a debtor can file a termination if the creditor doesn‘t do so within 20 days after proper demand. Check your state‘s UCC laws to see if and when this is an option.Keep in mind, if you go this route, you’ll likely need to pay a filing fee and may want to consult with a business attorney to make sure you’re completing the paperwork correctly.
Dispute the Lien With Credit Bureaus
If a terminated UCC lien is still showing up on your business credit reports, you can file a dispute with the credit bureaus reporting it.When you file a dispute, the bureau will investigate and may contact the MCA provider for more information. If the provider confirms the debt has been paid and the lien terminated, the bureau should remove the lien from your report.Just be prepared to provide documentation of the payoff and termination request. The more evidence you have, the stronger your dispute case will be.
Take Legal Action
In some cases, businesses have had to resort to legal action to get a stubborn UCC lien terminated. This usually involves hiring an attorney and filing a lawsuit against the MCA provider.Before going this route, it‘s a good idea to have your attorney send a formal demand letter to the provider, giving them one last chance to terminate the lien before you take them to court. Sometimes the threat of legal action is enough to get them to comply.If you do end up having to sue, you may be able to recover damages and attorney‘s fees from the provider, depending on the laws in your state. An experienced business attorney can advise you on your options and help you build a strong case.
Preventing UCC Lien Issues in the First Place
As the saying goes, an ounce of prevention is worth a pound of cure. While it’s good to know how to remove a UCC lien if needed, it’s even better to avoid lien issues in the first place.Here are some tips for preventing UCC lien headaches when taking out a merchant cash advance:
- Carefully read and understand the terms of your MCA agreement, including any provisions related to UCC liens
- Keep detailed records of all payments made on the advance
- Get payoff confirmation in writing once you’ve repaid the advance in full
- Confirm the UCC lien has been terminated shortly after payoff, while you still have the provider’s attention
- Consider working with a reputable MCA broker who can help you find a provider with a track record of promptly removing liens