UCC blanket liens: Definition of UCC and blanket Liens:
UCC blanket liens are not uncommon, especially with traditional financial institutions when filed for a business loan or personal loan. However, what are blanket ucc liens, what do they cover and what restrictions do they cause businesses?
UCC stands for Uniform Commercial Code. UCC liens are against specific assets of a person or business. Blanket UCC liens are against all assets, furniture, fixtures, and equipment. Further details of the lien will vary based on the lender. Lenders making unsecured loans such as an mca cash advance will still often claim all the other assets of the borrower including equipment and real estate. The lender will write in specific details, which may include:
1. A lien on Vehicles or a lien on accounts receivables
2. A lien on any future assets acquired during the term of the loan.
Both of the above lien conditions can be very significant to a business and business owners should be very cautious.
With a blanket lien, a business cannot use assets with a lien for a new loan.
If a lender puts a lien on a company’s accounts receivables, this means that if the company completes a job and is due a payment that far exceeds the remaining balance with the current lender, the current lender is the ultimate legal owner and legally entitled to the Accounts Receivable asset.
There are some ways to leverage encumbered assets for a business loan, which is usually real estate.
FAQ, Frequently asked Questions on UCC liens
What is a UCC lien filing?
A ucc lien is a legal recording 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?
It is a lien filed against all the assets, furniture, fixtures and equipment that a borrower has. It means the lien holder has everything the borrower owns as collateral. In the event of a default, they can take court action to repossess and liquidate the assets.
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. Lenders can do this when most of the loan has been paid down.
How do I remove a UCC filing?
You can delete a ucc lien filing by paying off the debt or contract through which the lien was placed. The lien holder 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 filing. If they have not, tell them to release the lien immediately and ask for a payoff letter. You can provide the payoff letter to the secretary of state and ask them to remove it.
What can be considered the worst type of lien is a lien on any future assets during the term of the loan.
Under this condition when the company buys more assets with cash after the original loan, the lender owns those assets the company bought with cash.
Violations of UCC liens
There is another legal grey area even with a regular UCC blanket lien filing. The regular UCC blanket lien says a lien on all assets, furniture fixtures and equipment. If the business acquires an asset which another lender puts a lien on due to a new loan, then there may legally be an ownership conflict with that collateral. Any new lender may not have a clear legal right to that asset based on the previous lien.
In many of these cases, there are significant issues that come with the lien filings and businesses should do due diligence or seek legal counsel.