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13 Jan 24

Terminating UCC Liens from Old Business Loans: Dos and Don’ts

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Last Updated on: 15th January 2024, 10:41 am

Terminating UCC Liens from Old Business Loans: Dos and Don’ts

Dealing with an old UCC lien from a previous business loan can be confusing and stressful. A UCC lien allows the lender to claim your business assets if you default on the loan. Even after paying off the loan, many small business owners discover these liens were never released. Fortunately, there are steps you can take to terminate a UCC lien.

What is a UCC Lien?

A UCC lien is a legal claim on your business assets filed by a lender with the Secretary of State’s office. It gives them rights to seize inventory, equipment, accounts receivable or other collateral if you fail to repay the loan as agreed.UCC stands for Uniform Commercial Code, which is the standard set of state laws governing commercial transactions like secured loans. All 50 states have adopted versions of the UCC.

Why Terminate a UCC Lien?

If you’ve paid off an old business loan but discover the associated UCC lien was never released, it can cause several problems:

  • Makes Getting Financing Harder – Active liens negatively impact your credit and make other lenders less likely to approve you.
  • Hurts Ability to Sell Assets – Buyers may walk away if they see your equipment is still collateral for an old loan.
  • Indicates You Defaulted – To the outside world, an active lien signals you failed to repay a lender as agreed.

Clearly terminating inaccurate or outdated UCC liens helps resolve these issues.

Dos and Don’ts for Removing UCC Liens

Follow this checklist to correctly terminate UCC liens from old commercial loans:

Do Review All Loan Documents

  • Verify the loan balance is fully paid off and you have documentation proving this.
  • Confirm the lender has no remaining security interest or claim on the collateral.
  • Carefully read the loan contract’s terms for releasing the lien.

Do Contact the Lender

  • Send a formal written request asking them to file a “UCC Termination Statement” .
  • If they confirm the lien should be terminated but don’t act quickly, follow up persistently.

Do Check UCC Records

  • Search UCC records to see if the lender filed the termination statement.
  • Look for the original UCC lien using your business name and EIN to retrieve the file number.
  • If a termination statement exists, the lien is officially released.

Don’t Try to Remove Liens Yourself

  • Only lenders can terminate UCC liens they originated. You cannot terminate a UCC lien by yourself.

Do Consult an Attorney

If the lender refuses or drags their feet releasing the lien, speak to a business attorney immediately. They can review the loan terms and send more aggressive lien release demands on official letterhead.

Do File Legal Action as Last Resort

If lender noncompliance continues, suing to compel them to release the lien may be your only recourse. An experienced commercial litigation lawyer can help obtain a court order officially clearing the invalid lien.

Helpful Resources for UCC Lien Removal

Additional resources that provide guidance managing UCC liens:

  • Reddit Threads – Other small business owners share their real-world experience terminating old liens.
  • SBA.gov – The US Small Business Administration offers an overview of UCC liens in their Learning Center.
  • Nolo Legal Encyclopedia – This site covers UCC lien release best practices for small businesses.
  • SCORE Mentors – Retired business executives provide free UCC lien advice and loan document review.

With persistence and help from experts, you can resolve leftover UCC liens from repaid loans. Stay organized, document all lender communications, and don’t hesitate to get legal assistance to protect your business.