MCA Companies and UCC Liens: How to Get Them Removed

Your MCA funder filed a UCC-1 lien against your business as a condition of offering financing. That lien stays on record until a UCC-3 termination statement is filed at the same office where the original lien was filed. There are four ways to make that happen: the funder files it voluntarily, you make it a condition of your settlement or payoff, you force the issue with written demand and a 20-day notice, or you wait five years for the lien to lapse automatically.

Public Record

The UCC-1 filing shows up as a public record. As such, these liens can affect a small business in myriad ways. First, lenders that would have considered a line of credit application may pass on it. Second, the lien may prevent small business owners from selling property, refinancing the property, or taking on new debt. Prospective lenders will see the lien and ask for clarification, which may delay or kill a financing transaction altogether.

Creditors file a UCC-1 with the appropriate state agency in the state where your business is domiciled. This differs from filing where your business operates. For example, you organize your LLC in Delaware and run your business in California. The creditor would file a UCC-1 with Delaware’s Secretary of State, not the California Secretary of State. It lasts five years. After that time, it expires automatically, unless the creditor files a continuation statement in the last six months of the five-year period. Most MCA funders file blanket liens on all business assets and receivables.

Getting Rid of the Lien

The creditor should file a UCC-3 termination statement on its own, as soon as the debt is paid. Banks and secured lenders usually do. MCA funders are much less dependable. This creates a problem for you, since you need to see the UCC-3 filed.

If you pay first, the release may never arrive. The lender has no incentive to send you a release after you paid them. Your written payoff, settlement, or escrow agreement should condition your payment on a UCC-3 delivered to you, or held in escrow, to be recorded at the same office where the original lien was filed. Getting rid of the lien is part of getting rid of the debt.

If you’ve paid it off, there is no reason for that UCC-1 lien to remain on your business. Send a simple demand letter and give them a deadline: “this debt has already been paid in full. We request that you file a UCC-3 at the same office where you filed the UCC-1. If you choose not to file the UCC-3, please send us a copy and we will take care of filing it. Please respond within 20 days.” Send it certified, to the same address you see on the lien. You’ll see the UCC file number on the lien they filed. The law says that the lender must file the termination or send a release within 20 days, or be liable for damages.

If 20 days passes without a response, you can send in the release yourself, as a “debtor authorized” filing. A commercial transaction lawyer in your state can make sure this is handled correctly. The statute on penalties for failing to comply with the 20-day deadline includes both a $500 penalty plus actual damages. That means if the lack of a UCC-3 filing prevented you from getting financing, then the funder can be liable for that lost financing in addition to the other penalties.

The 20-day rule has an exception, though. It does not apply if you sold the receivables. An MCA is structured like a sale. The contracts say the funding company is buying your future receivables. These contract structures create a legal defense that lets them claim the release obligation never applies. It may or may not work. But while the courts argue it out, your lien remains on file and in effect. To avoid this problem, make sure the release is a condition of paying off the debt. A short contract clause is all it takes to make the UCC-3 release an automatic requirement, so you don’t have to track it down later. It applies regardless of how the courts see the sale-vs-loan difference.

The same UCC-3 form is used to terminate a lien, as well as extend it. If you have a copy before it goes in, check to make sure the right box is checked.

Waiting five years for the lien to lapse assumes you have no financing plans. A dispute statement doesn’t mean the lien is removed. It means it’s being disputed, so others will still see the lien, dispute or no dispute. Only a termination statement will do that.

Make a List of Each of the Filings

Now’s the time to get a full picture. Look up the state office where you filed to organize your business. Make a list of each of the filings, matching the list to each of the funding agreements. The three important things to look for are the lender, the date, and the lien’s file number. This way, any settlement you negotiate will include having a release filed for each one.

You might find UCC liens on your business that you don’t even recognize. Some are just old, repaid funding contracts. Sometimes the filing is unauthorized. And if they filed the lien without your consent, the penalty is $500.

Make sure to search again after 30 days to make sure they filed the UCC-3.