NATIONALLY RECOGNIZED FEDERAL LAWYERS
Last Updated on: 15th January 2024, 04:52 pm
I Repaid My Merchant Cash Advance But They Won’t Release the UCC Lien
Merchant cash advances can provide quick access to capital for small businesses, but they also come with risks. A common issue that businesses run into is having difficulty getting the UCC lien released by the merchant cash advance company after repaying the advance. This article provides an overview of why liens may not be released as expected and what business owners can do.
How Merchant Cash Advances and Liens Work
A merchant cash advance (MCA) works differently than a standard small business loan. With an MCA, the funding company purchases a portion of the business’s future credit card or debit card sales at a discount. This functions as a cash advance that the business then repays as a percentage of daily credit card sales over a period of 6-18 months.To secure repayment, the MCA company places a UCC (Uniform Commercial Code) lien on the business’s assets. This gives them a senior claim to be repaid from business revenues or assets in case of nonpayment. The lien allows them to seize assets or garnish bank accounts if necessary to recoup their investment ((https://www.reddit.com/r/smallbusiness/comments/wk8x5q/merchant_cash_advance_ucc_lien/)).
Why Liens May Not Be Released After Repayment
There are a few common reasons why an MCA company may fail to release a UCC lien even after the advance has been fully repaid:
Accounting Errors – The MCA company’s records may reflect an outstanding balance still owed if payment processing issues resulted in some payments not being properly credited. This can happen if transaction descriptions weren’t entered properly. Getting the accounts reconciled can help resolve this.
Ongoing Payment Obligations – Some MCA agreements require the business to continue making payments for a period of time after the initial advance has been paid back. This effectively increases the total cost of financing. The lien release is contingent upon completing all payments, not just repaying the original advance amount.
Mistakes or Poor Communication – Occasionally MCA companies simply fail to initiate the lien release process promptly after repayment. Unless the business owner specifically requests and confirms the lien removal, it may remain in place indefinitely. Persistent follow-up is often required.
Debt Refinancing – If the MCA was refinanced or a second advance was taken from the same company, the original lien may remain active until both debts are fully repaid under the terms of the new agreement. The lien secures all obligations.
Legal Disputes – In some cases disagreements over repayment terms, interest rates, or other issues can result in the MCA company refusing to release the lien promptly after payment. This may be used as leverage to get the business owner to accept unfavorable changes to the original agreement.
Consequences of Failure to Release Lien
It’s important for business owners to get UCC liens removed promptly after repaying an MCA, as allowing them to remain indefinitely can cause several problems:
- Hinders Access to Additional Financing – Existing liens negatively impact credit and make it much harder to get approved for loans or additional funding.
- Signals Financial Distress – Liens on file can falsely signal to vendors, partners, and customers that the business is in financial turmoil.
- Reduces Operational Flexibility – The threat of asset seizure limits the ability to sell property or equipment, restructure, or enter agreements that require unencumbered assets.
- Invites Legal Trouble – The MCA company retains the right to seize assets, freeze bank accounts, or sue for breach of contract if payments are ever interrupted for any reason.
For these reasons it is essential to follow up persistently to get inaccurate, outdated, or unethical liens removed.
What to Do If Your MCA Lien Isn’t Released
If your business has fully repaid its merchant cash advance but the UCC lien has not been released, here are some practical steps to resolve the situation:
Request Lien Release in Writing – Send a formal letter to the MCA company requesting written confirmation that the lien will be terminated due to repayment in full of all obligations owed under the agreement. Specify a reasonable deadline for them to process the lien removal and provide documentation.
Pay Any Remaining Balance – If there is a question about whether all payments have posted properly, you can pay any amount the MCA company claims is still outstanding. Make sure to get a receipt showing a $0 balance owed once processed.
Audit Payment Records – Review and reconcile all deposits, payments, withdrawal amounts, and supporting statements related to the MCA. Verify payment processing receipts match funds withdrawn from the business checking account. Identify any discrepancies.Consult an Attorney – If the MCA company still refuses to release the lien even after full payment, it may constitute breach of contract. A business attorney can review the agreement and send a formal demand letter insisting on compliance. Legal action may be required if they fail to cooperate.
File a Complaint – If the MCA company appears to be engaged in unethical or illegal conduct by keeping liens in place improperly, consider filing complaints with the state attorney general’s office, FTC, and Consumer Financial Protection Bureau to trigger an investigation.
Change Bank Accounts – If the MCA agreement only entitles them to withdrawals from a specific bank account, closing that account can limit their ability to garnish funds. Any debts would still need to be addressed, however.Persistence and legal assertiveness are often necessary to get reluctant or negligent MCA companies to fulfill their obligations and terminate financing liens as required. Support from a qualified attorney can be invaluable to resolve these situations efficiently. Don’t hesitate to enforce your contractual rights.
Finding Reputable Merchant Cash Advance Companies
To avoid lien release issues in the future, it pays to do careful research before accepting financing offers from MCA companies. Warning signs of unreliable or predatory providers include:
- Very high interest rates and fees
- Refusing to provide a sample contract upfront
- Lack of positive online reviews and complaints of aggressive collections tactics
- Resistance to releasing liens promptly upon repayment
Vetting a company thoroughly and comparing options is wise. There are ethical alternative lenders that offer fair MCA terms and responsive customer service. Seeking their services instead can give business owners greater peace of mind.
For further reading on merchant cash advances and resolving problems with liens, check out the following additional resources:
- How to Remove a UCC Lien (Fundera)
- What Every Small Business Needs to Know About Merchant Cash Advances (Reddit)
- Beware! The Small-Business Loan You Didn’t Ask For and Didn’t Want (Wall Street Journal)
- Merchant Cash Advance Nightmare? Here’s What to Do (Nav)
I hope this overview has helped explain some of the common reasons merchant cash advance liens may not be released as expected after repayment and given you some ideas on how to resolve the problem. Let me know if you have any other questions!