What an MCA UCC lien means and how it gets terminated
Who this page is for: owners who found a UCC filing on their business, and brokers checking a file's liens.
Reviewed by the Afterfirst Editorial TeamLast reviewed 3 minute read
Why do merchant cash advance funders file UCC-1 statements?
Funders file UCC-1s to give public notice of their claim on the bought sales and any collateral.
Article 9 of the Uniform Commercial Code covers sales of accounts as well as secured loans (section 9-109). So a filing helps set the funder's place in line ahead of later claims. Other funders run UCC searches, which is one way they spot existing positions.
A lien from a funder still being paid is also a position. So a new advance is usually a second position. After a consolidation, every paid-off funder should file a UCC-3.
What is a 9-406 notice?
A 9-406 notice is a written notice based on UCC section 9-406. It tells the business's customers to pay the funder instead of the business.
Once an account debtor receives a proper notice, paying the business may not discharge its obligation. Some funders send these notices after a claimed default, which can disrupt customer relationships. It is a serious step and a reason to talk to a lawyer.
How do you remove a UCC filing after payoff?
Once the debt is paid, ask the secured party to file a UCC-3 termination. UCC section 9-513 covers the end of a lien.
Once the debt ends and the debtor sends a signed demand, the secured party must file or send a termination. It generally has 20 days. Keep the payoff letter and confirmation until the termination appears on the state's UCC search.
The stacking guide covers how a search reveals a stack.
How an MCA UCC lien reads to the next funder
A UCC filing tells a new funder that someone else claims the same sales. That can mean an open advance or a limit on new funding.
The new funder reads the filing alongside the statements.
Blanket liens on all assets
Some filings describe collateral broadly, covering all assets or all receivables. A broad filing from an active funder weighs more than a narrow one.
A bank credit line that already covers everything
A bank line of credit often comes with a blanket lien. An advance funder behind it is buying receivables the bank also claims.
Asking the bank to subordinate or consent
Some new funders ask whether the bank will subordinate or consent. Many banks will not, and the loan agreement may bar other financing.
Covenants on other financing in the bank agreement
Before taking an advance behind a bank line, read the bank agreement's covenants on other financing. Breaching them can put the line in default.
Equipment lenders with a narrow filing
An equipment lender usually files only on the financed machine. That filing rarely blocks an advance, though funders still note the payment.
Lien questions
Owners who found a filing on their business usually ask these.
Does a UCC lien hurt my business credit?
A UCC filing is a public record. Lenders and funders will see it, and it signals debts you already have. It is not a judgment. It can make new financing harder until it is terminated.
How do I find UCC filings on my business?
Search the secretary of state's UCC database in the state where the business is organized. Most states offer online searches. Brokers and funders run the same search.
What should I do if a paid-off funder will not terminate its UCC filing?
Send a written demand for termination, keep proof of payoff, and allow the time the statute provides. If the funder still does not act, a business attorney can advise on the remedies. Keep all correspondence.
Sources
- UCC section 9-109, scope of Article 9, including sales of accounts
- UCC section 9-406, discharge of account debtor and notification
- UCC section 9-513, termination statement
Afterfirst is not a lender; all offers are subject to funder underwriting.
Cost, credit, speed and stacking
- Cost
- A UCC filing costs nothing on the offer, but it can shape later offers. Read who holds a lien before you sign.
- Credit
- A lien is a public filing, separate from credit steps. Ask the funder about both before you sign.
- Speed
- Getting a filing ended after payoff can take follow-up. We make no promise on how long a funder takes.
- Stacking
- A new funder will see every lien on file. Name each open advance so the lien search holds no surprise.
Send one file.
See what fits.
Next step: The consolidation page explains how terminating each MCA UCC lien fits the payoff process.
Or write to the desk at info@afterfirstmca.com
A person replies within one business day.