UCC Blanket Liens Definition:
UCC blanket liens are when a lender places a lien on ALL of the assets of a business or a person at the Secretary of State.
Banks and other traditional financial institutions typically place blanket liens on a business loan. What do they cover, what restrictions do they cause companies?
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UCC stands for Uniform Commercial Code and are against the specific property of a person or business. For example, blanket UCC liens are usually against all property, including furniture, fixtures, and equipment.
Details will vary based on the funding company. Investors making unsecured loans such as an mca cash advance won’t do this, though may still encumber accounts receivables.
Traditional funding sources such as banks will write in specific details, that may include:
1. Vehicles or accounts receivables
2. Any future purchases during the term of the transaction.
Both of the above conditions can be very significant to any commercial operation and owners should be very cautious.
The business cannot use that collateral for new funding
Funding companies that encumber a company’s accounts receivables are now the legal owner of those receivables until the balance is paid in full.
There are better ways to leverage encumbered assets for a business loan, which uses only Vehicles, Equipment, or Real Estate.
FAQ, Frequently asked Questions
What is a UCC lien filing?
It is a legal recorded by a lender with the secretary of state on an individual or business. It is legally binding and any listed assets are held as collateral by the filer of the lien.
What is a ucc blanket lien?
A blanket refers to a lien filed against all the property, furniture, fixtures and equipment that a borrower has. It means the lender has everything the borrower owns as collateral. In the event of a default, they can take court action to repossess and liquidate that property.
Can I get another loan while a lender has a ucc blanket lien on all of my assets?
Only unsecured loans are available to you until the lien is removed. If multiple assets were taken as collateral by the lender, you can request they release some of those assets. They can do this when most of the loan has been paid down.
How do I remove a UCC filing?
You can delete a ucc filing by paying off the debt or contract for which the UCC was placed. The lender usually files a release of lien automatically after the debt is fully paid. Check with them after the payoff to find out when they will release their ucc. If they have not, tell them to release it immediately and ask for a payoff letter. You can provide the payoff letter to the secretary of state and ask them to remove it.
Avoid liens on future assets. This happens when the company buys more assets during the loan. The existing finance company now has blanket rights to anything the company has bought outright.
Violations of UCC liens
There is another legal grey area even with a regular UCC blanket filing. Regular UCC blanket liens are on all property, furniture, fixtures and equipment.
If the company acquires property which a new lender takes as collateral, then there may be ownership conflict with that collateral.
Also, any new lender may not have a clear legal right to that asset based on the previous Uniform Commercial Code.
Finally, there are significant issues that come with collateral Uniform Commercial Code filings. Businesses should do due diligence or seek legal counsel.