Category: Guides
Liens: Understanding Them and How They Can Affect Your Business
What is a UCC lien?
A lien is a legal claim by a lender against a business asset that is used to secure a loan. It’s essentially an official notification by a lender that the business owes them money, and that if the business doesn’t pay it back, the lender claims the right to other business assets.
A UCC lien, or UCC filing, is a notice that a lender has a security interest in one or more of your assets. The term comes from a collection of established rules that govern how commercial transactions work in the United States, called the Uniform Commercial Code (UCC). UCC liens can be filed against businesses or individuals.
When your business enters into a financing agreement that is secured by collateral, a UCC lien could be filed against any assets you pledged to secure the loan. A UCC lien does not generally hurt your business’s day-to-day operations, but could prevent you from getting additional funding before satisfying the lien.
While other types of liens typically get filed because of something bad happening, such as not paying your taxes, a UCC lien is a normal part of small business financing. The lien serves as notice to all potential creditors that you owe a lender money and that your assets are pledged to that lender until you repay the debt.
Why liens matter to your business?
Imagine two people ask to borrow money. You find out that one person has three other loans, and has already promised to pay them back before they pay you back. Who will you lend to?
Financing providers operate in the same way. All else being equal, the fewer liens that are already on your business, the larger a credit line they will be willing to extend to your business. Unfortunately, however, not all lenders release their liens as soon as you pay off the corresponding debt, and this can cause problems when other financial providers evaluate your business.
How to find liens on your business
Want to do a quick health check on your liens? First, you need to know what state your business is incorporated in. Most likely this is your headquarters state (particularly if you are a sole proprietor), though for tax reasons some businesses incorporate in a different state.
Next, if you are incorporated in one of the 14 following states, you’re in luck: your lien search will be free. The 14 states with free searches are Alaska, Arizona, Colorado, Florida, Iowa, Kentucky, Massachusetts, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Rhode Island.
If your state doesn’t show up in that list, you can still do a search for a small fee through the Secretary of State.
How to remove liens
The first step to legally removing a UCC lien is to pay off the debt. The rules for releasing a UCC lien after the debt is paid vary by state, but there are 2 main ways to remove them:
- The Lender Files a UCC-3 Financing Statement Amendment
- You Can Swear an Oath of Full Payment at Your State’s SOS Office
Liens will still show up in a UCC search for up to five years after they are removed, but the search will show that the lien has been satisfied. They will not be removed from the database, but the database will show that you met your obligations to the lender and they no longer have any rights to your assets.
- Lender Files a UCC-3
You can request that your lender files a UCC-3 financing statement amendment. This will remove the UCC lien. Lenders are not required to file this, and most will not do this automatically. UCC liens expire automatically after 5 years (but can be renewed by the lender on longer term loans). Since they automatically expire, most lenders do not bother filing releases unless a borrower requests they do so.
How to remove liens (cont’d)
You can also request removal of a UCC lien with your final payment, or any time after you have paid off your loan. When the lender receives your release request then they should start the process of filing the UCC-3 and give you confirmation of any filing.
If your lien search reveals obsolete liens that are tied to financing you have already repaid, you should contact the lender (the “secured party” in lien terms) and notify them that you want the lien removed, which they are required to do if they don’t have ongoing claims.
- Swear an Oath of Full Payment
You can go down to your state’s SOS office and swear an oath that the debt has been paid in full. You can do this at any time, and the lien will be removed the same as it would if your lender filed the UCC-3. Lying about these UCC liens can result in certain penalties that can include fines or jail time.
Conclusion
UCC liens are not something you generally should be worried about or surprised by. The only potential drawback to having a UCC filing is not being able to get additional funding using your assets as collateral. Every time you enter into a financing agreement you should be aware that a UCC lien may be filed against your business’s assets.
If your business currently has a UCC filing against it from a traditional long term lender, and you are struggling to find additional financing, then you should consider a loan with Fresh Funding. Divergent cares more about your business’s revenues than they do about collateral. We can fund up to $500,000 as quick as 1 business day. Apply today, free of charge, to see how much you qualify for.
5 Fast Funding Options for Your Business to Grow & Scale Up
With the summer just around the corner, many business owners are seeking viable solutions and services to boost sales, stock up on inventory, hire additional staff or buy additional equipment to grow their business feasibly. But, how can organizations access the funds they need to fuel these growth efforts? With a range of options such as self-funding with retained earnings, borrowing from friends or family, getting an SBA (Small Business Administration) loan, crowdfunding via Kickstarter and Indiegogo, or taking an alternative loan – what’s your best bet?
Let’s explore the pros and cons of these 5 fast funding options in today’s market.
Self-Funding: Applying Earnings as a Primary Source of Funding
Most small to mid-sized businesses that are afloat and profitable have put earnings and profits aside; be it in a trust fund, savings fund or high interest investments, business owners have retained partial revenue and ROI from their sales, services and offering. With that, business operations demand overhead for manpower, operational space or office rent/lease expenses, outsourced services, supplies and more.
The potentially central drawback of self-funding growth with retained funds is truly sustainability. Nothing lasts forever, and savings or self-retained earnings reach their cap at some point. The question is will the revenue generated offer great ROI on use of retained earnings, or not? Hard to say.
The upside of this option is that using your own funds and generating business growth is rewarding, gratifying and eliminates paying back the loan or interest altogether.
Oil and Water Don’t Mix: Friends and Family For Funding – the Clash Between Convenience and Conflict
If someone wakes you up at 4am and asks you the following, what’s your default answer? “Do you really want to hear your uncle chasing you for 100k, and does your relationship stand at stake, despite the $0 interest incurred with a loan from him?” Most times, the answer is no I don’t want to deal with it, but sometimes, taking the risk of putting a family relationship or friendship at stake for business growth is a viable option with low financial risks.
If you trust the lender in your friends or family, the trust can be reinforced with repayment, leveraging well-earned respect for you from the lender. You can also prove your sense of responsibility friends, and your business flourishes, while potentially gaining a new partner or investor in a business that you may have overseen in the past.
SBA Loans: What They Are, How They Work – What’s in it For You?
SBA (Small Business Administration) Loans are partially government funded and guaranteed, offer lower risk and debt potential for the lending financial institution, (often banks), and lower borrower and lender risk. How? SBA loans offer a cushion to fall back on, as the government will support you and help pay back your loan if you. And while you’ve created debt, it’s less psychologically, emotionally and fiscally taxing, and can potentially generate great ROI for growth.
Crowdfunding Campaigns: At the Mercy of the Public’s Belief in Your Business
The growing trend of crowdfunding campaigns on platforms like Kickstarter and Indiegogo is an ideal way to increase brand awareness, sales and funding all in one. While your USP (Unique Sales Proposition) and added market value are subject to public evaluation and financial growth and contributor funding means time, marketing resources and energy, the benefits are noteworthy. Cutting edge companies are often the public’s preference when generously funding your cause.
But, if the public sees the added value in your offering, you double the rewards with increased brand awareness, leverage viral, online content generation that can create sales and upsell, and there are no loans to payback. The public is aware of where the funds go, you increase credibility with transparency, and the achievements are measurable, all perks and pluses.
Alternative Borrowing: Big Bucks, Big Interest, Bigger Debt or Biggest Growth Ahead?
Alternative lending is a viable option for businesses challenged by banks’ rigid loan requirements seeking expedited access to funds. Working capital lenders evaluate the expected revenue you’re expected to generate in future receivables, and are willing to issue funding in proportional size to them. Options like revenue based financing offer flexibility, as the repayment speed is based on the sales actually generated over the repayment period, as opposed to a fixed monthly sum.
