7 Steps to Terminate UCC Liens After Settling Your MCAs

Your MCAs might have been paid and your contract with the MCA company terminated, but that’s not the end of the matter. The UCC-1 financing statement has to be cleared by filing a separate UCC-3. Left alone, UCC-1s are effective for 5 years from the date they are filed.

This can be even more serious than it sounds. Even when you pay off an MCA account, the funder may keep the blanket UCC-1 in place, which will come back to haunt you if you apply for an SBA loan or a line of credit, because as far as the banks or the SBA are concerned, someone’s already got their hands on all your receivables.

1. Find every filing

You’ll need to make a search request with the filing office in the state where the business was organized (if you organized your LLC in Delaware, it’s Delaware’s office you’re looking for, even if you run the business in New Jersey.) That office will produce a listing of every active filing that lists the LLC as debtor. Every office responds to a search request within two business days, and you can’t make an intelligent start on negotiations until you know what they have.

2. Match each filing to a position

Once you have the filings, you can start matching them to the underlying contract. There will be filings you’ve long since repaid, filings that were quietly filed by a broker or independent sales organization (ISO), and of course filings for advances that are currently active. This can be the most taxing part of the process. When you’re not sure what you’ve paid and what you owe, send the funder a request for an accounting. They have fourteen days to respond with a full statement, unless they’re an accounts buyer.

3. Make termination a closing condition

With an inventory of the active UCC-1s in hand, you can start the negotiation. Each active advance needs to be settled individually, and part of the deal has to be that the MCA agrees to deliver a UCC-3 at the time of settlement. This all has to be set out in advance of closing, and every payment has to come with a signed termination agreement, or alternatively have the terminations all held in escrow and released simultaneously. With the MCA’s lien properly terminated, there’s nothing left for you to chase them about afterward. Otherwise, you’re going to be chasing your tail for months trying to get signed releases.

4. Send an authenticated demand

If you have any closed-out advances that still have active UCC-1s, you can demand that the funder release those now. If the account isn’t open anymore, and there are no more advances promised, the law (at UCC 9-513) gives the secured party 20 days to respond to the demand by filing the termination statement or sending you one.

Send the secured party a letter, referring to the UCC-1 by its file number and filing date, stating that the debt has been satisfied and that there’s no commitment to advance any more funds. Get it certified, to the address listed on the UCC-1, and keep a copy of it and the return receipt.

5. Expect the sold-receivables excuse

Some MCA companies will tell you that they don’t have to comply with the UCC’s 20-day demand rule because the MCA is really a purchase of your receivables. It may or may not hold, depending on the facts and the company you’re dealing with, and what state you’re in, but no matter what, it will buy the MCA company time.

The language in the contract will matter.

6. Escalate the holdouts

One or more of the secured parties may not cooperate. It’s not reasonable, but it happens. At that point, you can file the UCC-3 yourself, once the 20 days are up. But to do that, you have to be named as an “authorizing party” on the UCC-3. Filing the wrong UCC-3 is its own liability. Your safest bet is to use an attorney, but most funders will fold with a proper demand.

And a violation of the 20-day rule gives you $500, plus actual damages. You might have lost a financing deal or been forced to take a replacement loan at a higher rate. There is also the 9-518 statement, which lets you declare the dispute to the world but won’t actually get the lien released.

7. Confirm the record is clean

A month after the settled date, run a search again and confirm that each active filing has a “Termination Statement” attached to it. Lenders only read the index, so what matters isn’t whether the MCA company’s file is complete but whether the master index shows all the relevant liens terminated.

The same form does continuations and collateral changes as well as terminations, but it’s the termination box you’re looking for. “Continuation Statement” doesn’t terminate anything - that’s “Termination Statement.”

It’s not likely you can just walk away and wait for a UCC-1 financing statement to lapse in five years. That’s a solution when there’s no financing and no continuation, and that’s not usually the case.