What is a UCC lien?

You might have heard that some lenders don’t ask for collateral but require a UCC lien on your business assets. This generally means that your business might have to give up those assets if you can’t pay back your loan. Getting a business loan that requires a UCC lien might be riskier, but it could also open up more competitive rates and terms.

What is a UCC lien?

A UCC lien — also known as a UCC-1 filing or UCC-1 lien — is a legal claim that a lender has on one or more of your business assets in case you default on your business loan. It makes financing less risky for lenders and creates a systematic way for them to back the loans they issue with assets. These might include:

UCC liens are common on many business loans, even if the lender doesn’t require any specific collateral.

How does a UCC filing work?

A UCC filing starts when you sign your business loan’s security agreement. The security agreement is part of your loan documents and allows your lender to file a lien against all or some of your business assets.

Once your lender receives the signed security agreement, it files a UCC-1 financing statement with the secretary of state in the state where your business is incorporated. If your lender is filing a lien on physical property like equipment or real estate, it must file the financing statement in the county where your business keeps that property.

The UCC-1 financing statement is a one-page document that contains the following information:

• Your business’s name and address
• Your lender’s name and address
• A list and description of collateral

After your lender files the financing statement, the UCC-1 lien becomes a part of public record.

When securing a loan with a specific asset, your business typically can’t put that item up for collateral again until the lien is removed. However, more than one lender can file a UCC-1 lien on a business’s assets.

Here’s how it works: Whoever files the lien first gets first dibs on your business’s assets when things go south. After it’s seized enough to cover what your business owes, the next lender to file a lien gets access. Typically, only short-term lenders are willing to be the second or third lender in line. Some lenders might be willing to work with a business that already has a UCC lien on the condition that you remove it first.

• UCC financial statement document

  

Ready to apply? Compare top business loans

{"niche":"USFBL"}

Sort by:

Name	Product	Filter Values	Loan amount	Starting APR	Requirements
Lendio			$500 – $5,000,000	6%	Operate a business in the US or Canada, have a business bank account and have a personal credit score of 675+.	Submit one simple application to potentially get offers from a network of over 75 legit business lenders.	Check eligibility More Info		loading Fetching your data...
OnDeck			$5,000 – $500,000	9.99%	600+ personal credit score, 1+ years in business, $100,000+ annual revenue	A leading online business lender offering flexible financing at competitive fixed rates.	Check eligibility More Info		loading Fetching your data...
SmartBiz			$30,000 – $5,000,000	4.75%	650+ personal credit score, US citizen or permanent resident, 2+ years in business, $50,000+ annual revenue, no outstanding tax liens, no bankruptcies or foreclosures in past 3 years	Get funding for your small business with a government-backed loan and extended repayment terms.	Check eligibility More Info		loading Fetching your data...

loading

Compare up to 4 providers

Clear selection

Compare

The two types of UCC liens

There are two types of UCC filings when it comes to business loans: liens against specific collateral and blanket liens against all of your business assets.

1. Specific collateral liens

Your lender files a UCC-1 lien against one specific asset to use as collateral for your loan. For example, if you took out a loan to buy a dough mixer for your pizzeria and pledged it as collateral, your lender would file a lien against that specific dough mixer and nothing else. These are common for loans to buy inventory, vehicles or equipment.

Liens against specific collateral work in two ways: They pledge the collateral to your lender and ensure no other lender can use that specific collateral on a loan until the lien’s lifted.

2. Blanket liens

Your lender files a UCC-1 lien against all of your business assets when you don’t have a specific item to back your loan. If you have certain assets you want exempt from the blanket lien, your lender may allow for exceptions. These are common with term loans from banks, online lenders and SBA loans.

A blanket lien can help you secure a business loan when you don’t have enough physical assets to back the amount you’re borrowing. And lenders typically prefer blanket liens because they’re more flexible. However, it can make it difficult to qualify for other business financing until the lien is removed.

What type of lien might my business expect?

Typically, businesses don’t have a choice between a lien against collateral or a blanket lien when they apply for a loan. It often depends on what type of financing you’re looking for.

3 ways a UCC lien can affect your business

Before taking out a business loan that requires a UCC lien, consider the ways it could impact your business.

1. It can make it difficult to get another loan. While you might be able to get a short-term business loan when you have a UCC lien, most traditional lenders won’t work with your business until the lien is removed.
2. It will show up on your business credit report. All UCC liens filed in the past five years will show up on your business credit report, even after they’re closed. While it won’t affect your business’s credit score, creditors will see it if you apply for another loan or credit card.
3. Your business could lose its assets. The point of a lien is to give your lender access to your business assets if you default. It’ll need to take legal action first before seizing anything, however.

How can I remove a UCC lien?

You can only remove a UCC lien after your loan is fully repaid, and the process varies by state. Most require the lender to file a UCC-3 financing statement amendment. However, lenders aren’t required to do this automatically.

To get your lender to file the UCC-3 statement, send a signed written request — also known as an authenticated demand. Once your lender receives your request, it has 20 days to either remove the lien or send you a statement allowing you to.

If your lender doesn’t do either of these things within 20 days, you can file the UCC-3 statement yourself.

Bottom line

UCC liens are common with most types of business financing, whether it’s a lien against a specific item or all of your business’s assets. Even some unsecured business loans might require a blanket lien. While it can help your business qualify for more favorable rates and terms, it can also limit your credit options and put your assets at risk.

Interested in learning more about how business financing works? Check out our business loans guide, where you can also compare top lenders.

Frequently asked questions

• Is a blanket lien the same as a personal guarantee?

  No, but it’s similar. A personal guarantee is when a business owner pledges their personal assets to back a business loan. When you personally guarantee a loan and your business defaults, your lender can go after your home, car and anything else you own that has monetary value.

  In fact, some lenders ask for both a personal guarantee from business owners and a UCC-1 lien on your business assets. You can learn more about how it works by reading our article on personal guarantees.

• Is a UCC filing bad?

  Not necessarily — it can help you get a better deal sometimes. However, it’s risker for the business owner and can make it hard to get another loan until the lien is removed.

• Do businesses have to pay extra fees for a UCC lien?

  Generally, no. States typically charge a UCC filing fee of around $20 to $40, but it’s usually the lender’s responsibility to cover it.

_{Image source: https://www.dos.ny.gov/forms/corporations/UCC1.pdf}