script type="application/ld+json"> { "@context": "", "@type": "Product", "name": "Delancey Street", "aggregateRating": { "@type": "AggregateRating", "ratingValue": "5", "reviewCount": "10" } } What is a UCC Lien in Merchant Cash Advance? | Delancey Street

The Merchant Cash Advance Trap: When UCC Liens Become a Noose

You’re a small business owner, struggling to make ends meet – and a merchant cash advance (MCA) seems like a lifeline, right? Well, think again: because that “advance” could quickly turn into a stranglehold on your business, thanks to the dreaded UCC lien.

What Even Is a UCC Lien?

Let’s start with the basics, shall we? A UCC (Uniform Commercial Code) lien is a legal claim that an MCA provider can place on your business assets – to secure repayment of the advance they gave you.Now, you might be thinking: “Sure, but I’ll just pay it back on time, no problem.” Ah, if only it were that simple. You see, these UCC liens come in two flavors: specific collateral liens, and blanket liens – and the latter is where things get really ugly.

The Blanket Lien: Smothering Your Business

With a blanket UCC lien, the MCA company doesn’t just have a claim on one or two assets – oh no, they can go after your entire business. Every penny, every asset, every last thing you own: it’s all fair game if you can’t repay that advance.So, let’s imagine you took a $50,000 advance, with a factor rate of 1.4 (meaning you owe $70,000 in total). You’re diligently making those daily payments of, say, $500 – when bam, a supplier doesn’t pay their invoice, and your cash flow dries up.Suddenly, you miss a payment – and the MCA provider pounces, thanks to that blanket lien. They can:

  • Freeze your bank accounts
  • Garnish your receivables
  • Seize equipment, inventory, you name it
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All while slapping you with crazy default charges and fees, of course. Your business is effectively crippled – all because of a temporary cash crunch.

The Confession of Judgment: Guilty Until Proven Innocent

But wait, it gets worse! Many MCA contracts contain what’s known as a “confession of judgment” clause. Basically, by signing, you’re confessing in advance that if you miss payments, the MCA company can get a court judgment against you – without you even having a say.So there’s no trial, no defense – just a judge rubber-stamping an order that allows the MCA sharks to start seizing assets and garnishing accounts immediately. It’s a brutal, one-sided deal that strips you of any legal recourse.

The Vicious Cycle of MCAs and UCC Liens

Now, at this point you might be thinking: “Okay, okay, I get it – MCAs are bad news. I’ll just steer clear!”Not so fast, my friend. Because once you’re caught in the MCA web, it’s incredibly hard to escape. Let me paint you a picture:You took that first advance to cover a slow period, fully intending to pay it back quickly. But then another cash crunch hits, so you take a second MCA – this time with a confession judgment.You’re now juggling multiple daily payments, each with their own fees and usurious rates. Inevitably, you miss a payment – and bam, the MCA company has a judgment against you.Your accounts are frozen, your customers’ payments are being siphoned off. In desperation, you take yet another MCA, using those funds to try and pay off the previous ones. But it’s too late – you’re in a vicious cycle of debt, fees, and dwindling cash flow.All the while, those UCC blanket liens just keep piling up, giving each new MCA provider more and more claim over your dwindling assets. It’s a surefire way to go out of business.

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The Red Flags: Spotting a Predatory MCA

At this point, you’re probably thinking MCAs sound pretty darn shady. And you’d be right – the reputable ones are few and far between.Here are some big red flags to watch out for:

Exorbitant Factor Rates
A factor rate over 1.4 is generally considered extremely high-risk. Anything above 1.5 or 1.6 is just highway robbery with extra steps.

Murky Fees and Terms
If the MCA provider won’t clearly disclose fees, factor rates, payment amounts etc. upfront – run. Lack of transparency is a huge red flag.

Pressure Tactics
Reputable MCA companies let you review terms in full before signing. If they’re pushing for an immediate signature, or using aggressive sales tactics – it’s a sign they’re more interested in trapping you than helping your business.

Confession of Judgment Clauses
As we discussed, any contract with one of these is an automatic no-go. It strips you of legal rights from the get-go.At the end of the day, the vast majority of MCAs are just predatory loan-sharking schemes dressed up in fancy jargon. They use UCC liens and other legal loopholes to bypass standard lending regulations – and bleed small businesses dry in the process.

The Better Alternative: Responsible Financing

Look, I get it: when cash is tight, you’ll do whatever it takes to keep your business afloat. But signing up for an MCA is a bit like putting a tourniquet on a severed limb – it might buy you some time, but it’s not a real solution.Instead, explore more responsible financing options from reputable lenders:

  • SBA loans with reasonable rates and terms
  • Lines of credit from ethical alternative lenders
  • Crowdfunding or investors for growth capital
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Basically, anything that doesn’t involve signing away the rights to your entire business in exchange for a short-term cash injection.And if you’ve already fallen into the MCA trap? Don’t lose hope – but do seek professional help, fast. Speak to a debt relief attorney who specializes in these kinds of predatory lending schemes. They may be able to renegotiate terms, prevent asset seizures, or even get UCC liens removed entirely.

The Bottom Line: Don’t Get Caught in the MCA Trap

At the end of the day, merchant cash advances are designed to ensnare struggling businesses in a neverending cycle of debt, fees, and legal loopholes like UCC liens. Sure, they might seem like a lifeline when you’re desperate – but more often than not, they’ll just drag you under completely.So be smart: explore alternative financing first. Understand the risks and red flags. And if you’ve already gotten tangled up in an MCA nightmare? Get professional help to fight back against those UCC liens and abusive terms.

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