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Getting Out from Under That UCC Lien – What to Do When You’ve Paid Back Your Merchant Cash Advance

You signed up for a merchant cash advance to get some quick capital into your small business. That lifeline helped you bridge a rough patch or invest in growth when no bank would give you the time of day. But now that you’ve paid it all back – with interest! – your friendly merchant lender hasn’t removed the lien from your business assets. Sound familiar? You’re not alone. Lots of small business owners get trapped dealing with UCC liens even after repaying these alternative small business loans, which aren’t really loans at all. Let’s break down what’s going on, and what you can do to get out from under that UCC filing.

The Backstory on Merchant Lenders and UCC Liens

Merchant cash advance companies aren’t lenders – they’re investors. That’s an important distinction legally. When you get a merchant cash advance (MCA), you’re selling a portion of your future sales revenue to an MCA company in exchange for a lump sum right now. The MCA company buys the right to collect daily payments from your credit card sales until they’ve recouped the lump sum plus a very healthy return – usually payback totals range from 1.2 to 2 times what you received upfront.
To secure their investment, most MCA companies will file a UCC-1 financing statement that puts a lien on your business assets as collateral. If you default, they can seize your assets to get their money back. But what happens when you don’t default and fully pay back the MCA?

Getting the Lien Removed After Full Repayment

In theory, the MCA company should remove the UCC lien promptly after you make your final payment. In practice, many merchant lenders drag their feet on filing the UCC-3 termination statement that releases the lien. Some unscrupulous ones use it as leverage to pressure business owners to take out another MCA. So how do you get it removed?
First, review your MCA agreement to see if there’s a timeline specified for filing the UCC-3 after final repayment – there may be a clause they’re violating. If not, send a formal written request to the merchant lender asking them to file the termination statement. Specify the date you made the final payment.
By law they should comply within 20 days under most state UCC statutes. But if they don’t, don’t panic! You can file it yourself in most states. Look up how to file a UCC-3 in your state (here’s a directory by state). Requirements vary, but typically you’ll submit a form signed by the secured party (the MCA company) stating that the original UCC-1 has been terminated.
Some states let the business owner file a UCC-3 by themselves to terminate the lien if the secured party is unresponsive. These self-filed termination statements usually require stating you requested the secured party to file but they didn’t within 20 days. Here’s a sample UCC-3 form you can tweak.

What If They Still Won’t Cooperate?

Even if you follow all the steps above, some merchant lenders will stubbornly refuse to release the lien. They may be angling to entrap you into another MCA or simply unwilling to surrender leverage over your business. In that case, further legal action may be needed to compel them. Here are some options:

• File a complaint with the state attorney general’s office. Most states have consumer protection laws regarding unfair lending practices that may apply.
• Report them to the FTC if they’re violating federal regulations like the Fair Debt Collection Practices Act.
• Consult an attorney about sending a demand letter requiring them to file the UCC-3 or face legal consequences like statutory damages.
• As a last resort, sue them to seek a court order forcing them to release the lien. Costly but often successful.

The good news is that most states’ laws favor the business owner in this scenario. The UCC provides remedies to compel uncooperative lenders to terminate liens after repayment. Don’t let them continue wielding an unfair advantage over you.

Avoiding UCC Headache Scenarios from the Start

They key is vetting potential merchant lenders carefully upfront before signing any MCA agreement. Scrutinize contract fine print to understand the entire repayment process including timeline for lien removal upon paying in full.
Also research the lender’s reputation with the Better Business Bureau and online to spot any red flags around customer complaints of overly aggressive collections or refusing to release liens. And as always, have an attorney review the terms before signing.

Life After Lien Release

Once you finally do get that coveted UCC-3 filed to terminate the lien, congratulations! Your business assets are free and clear. Just be sure to obtain a copy of the filed document from your state’s UCC records office. All in all, navigating UCC liens can be a complicated process – but knowledge is power. Arm yourself with the right information and resources so you don’t get stuck under obligations you’ve already fulfilled.