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Residual UCC Liens After Merchant Cash Advances: How to Get Rid of Them

So you took out a merchant cash advance loan for your business, but now you’ve paid it back in full. You think you’re in the clear, but then you discover the lender never released their UCC lien on your business assets. What gives? Can they do that? And more importantly, how do you make them remove it?

This sticky situation happens more often than you’d think. Many small business owners aren’t aware of all the nitty gritty details when they sign up for financing. Let’s break down what’s going on and the steps you need to take to terminate any leftover liens.

The Lowdown on Merchant Cash Advance UCC Liens

First things first – what is a UCC lien? The Uniform Commercial Code (UCC) is a set of state laws that governs commercial transactions. When a lender finances a business, they can file a UCC-1 form to secure a lien on the business’s assets as collateral. This gives them dibs to seize those assets if the loan goes unpaid.

With a merchant cash advance (MCA), the agreement stipulates the lender will collect a percentage of daily credit card sales until the balance is repaid. The UCC lien gives them backup collateral, just in case the repayments fall short.

Now here’s where things get messy – some shady MCA lenders deliberately leave UCC liens in place even after the advance has been paid in full. This encumbers the business assets and hampers the owner’s borrowing capacity for future financing. Totally unethical!

Do Lenders Have to Release UCC Liens?

The short answer is yes! Once a loan has been fully repaid, the lender must file a UCC-3 form to terminate the financing statement. If they don’t, the business owner can demand they release the lien or face legal consequences.

According to UCC Article 9 §513, a secured lender must file a termination statement within 20 days after receiving full payment. Failure to do so opens them up to damages plus attorneys fees and court costs.

So in short – yes, MCA lenders are legally obligated to remove UCC liens once an advance has been repaid. No ifs, ands or buts!

How to Terminate a Leftover UCC Lien

If you find a past MCA lender has neglected to release their lien, you have a few options to force their hand:

1. Send a demand letter – In a formal letter, demand the lender file a termination statement within 20 days per UCC Article 9. Specify that failure to comply will spur legal action.
2. File your own termination – The business owner can file a UCC-3 form themselves to terminate the financing statement. Costs around $20.
3. Get an attorney involved – Hire a lawyer to send a demand letter on your behalf. This adds more legal weight to the request.
4. Take them to court – Sue the lender for damages plus attorneys fees for not releasing the lien per state UCC laws.

Typically the first step of sending a demand letter does the trick. If not, filing your own termination or escalating to litigation sends a clear message you won’t tolerate their games.

Avoiding UCC Headache with MCAs

As the saying goes – an ounce of prevention is worth a pound of cure. While you have legal recourse for removing liens, it’s best to avoid this nuisance altogether. Here are some tips:

• Vet MCA lenders carefully and read the fine print before signing anything.
• Include a timeline for when the lien will be released in the agreement.
• Get lien releases in writing as you pay down the advance.
• Request a copy of the filed UCC-3 termination once paid in full.

Taking these preventive steps will spare you the hassle of chasing down lenders after the fact to remove lingering liens.

Parting Thoughts

Dealing with UCC liens is yet another landmine small business owners face in securing financing. While some lenders exploit loopholes for their own gain, the law is ultimately on your side. Arm yourself with knowledge of the UCC code and take swift action at the first sign of funny business!