Liens And How They Effect Your Ability To Obtain Business Financing

Access Financing, Become Bankable, Lender Compliance

Before applying for any business financing, you should always check to see if there are any UCC-1 filings on your business. UCC stands for Uniform Commercial Code. It is a nationwide filing system to record liens and debt obligations that your business has either entered into willingly or that have been filed against it.

If you have any type of SBA loan, then what is called a “Blanket Lien” has been filed on you personally and on your business. A Blanket Lien is just like it sounds. It encumbers all past, present, and future assets that both you personally and that your business owns. A Blanket Lien can block many other types of business lending from taking place until that blanket lien is paid off.

Let’s take a deeper dive into UCC filings:

  • Blanket UCC-1: This is commonly known as a “blanket lien”. With this type of filing a security interest is taken that covers all of the business assets; past, presence and future. This means the security holder has a claim against everything the business owns and everything the business acquires until such time as the debt is paid. For a small business this will include your equipment, real estate, inventory, receivables and any other type of owned assets. Some lenders, like the SBA, will also file a blanket lien on all the personal assets of all owners who hold a 20% or higher share in the business. If a blanket lien is filed, it can make it difficult or even impossible to secure further financing until that debt is paid and the lien is released.
  • Specific UCC-1: When you sign a UCC filing with a creditor it is a “Consensual Lien” where you have given consent for that filing. This type of UCC filing takes a security interest in only those things specifically mentioned and detailed in the filing. These are most common for equipment items such as airplanes, ships, yellow iron, trucks, trains, etc. Specific UCC filings are also common when taking a security interest in commercial real estate.
  • Termination UCC-3: This UCC filing is to release the lien and remove the security held on the assets. If there is a Blanket UCC filing on your business or on you personally you will want to either get it removed by having a Termination UCC-3 filed or having the “Blanket UCC-1” amended to be a “Specific UCC-1. The form to file for any prior UCC filings is a “UCC-3”.
  • Tax Liens: State and Federal Tax Liens will appear in UCC filings. Tax liens are called “Statutory Liens” where no consent has been given but are filed under the rule of law. Other tax liens, such as City or County for property taxes, are not UCC filed but instead are filed at the County level. State and Federal UCC tax lien filings will encumber all owned assets; past, present and future.
  • Other Liens: The various other types of liens such as Mechanic Liens, Judgments, Lis Pendens (Lawsuit Pending) etc. will not be UCC filings but will be public records that are filed at the County level.

Lender approval computer algorithms will most likely do a comprehensive search to discover other existing business loans and to determine if the business assets are already encumbered. This will typically include a UCC lien search, a tax lien search and a county level lien search. With today’s technology and database APIs, these searches can be completed in a matter of minutes. This makes it critical that you have performed these searches and know where you and your business stand before applying for new business loans.