The UCC-1 Is a Notice, Not an Execution
When a merchant cash advance funder files a UCC-1 financing statement, it is recording a security interest, not seizing anything. The filing notifies the world that the funder has a lien on the described collateral. Actual seizure requires either voluntary surrender, a court order, or a completed execution on a judgment. Business owners who receive UCC filings sometimes believe the assets are gone. They are encumbered. That is different.
What Blanket Liens Actually Cover
Most MCA agreements authorize a blanket lien, which in UCC terminology means the security interest covers all assets of the business: accounts receivable, inventory, equipment, fixtures, vehicles, and general intangibles including intellectual property and trade names. The breadth is intentional. Funders want the broadest possible coverage to maximize their leverage and their recovery in a default scenario.
What a blanket lien covers in the agreement and what a court will actually allow the funder to seize following a judgment are related but not identical questions. Courts do not simply rubber-stamp whatever the contract provides.
Equipment Subject to Prior Financing
If a business owner financed a piece of equipment through a traditional lender, that lender has a purchase-money security interest that typically takes priority over a later-filed blanket UCC-1 lien. The MCA funder’s lien attaches to whatever equity the business has in the equipment, but it does not displace the equipment lender’s senior interest. Seizing a piece of equipment with a large outstanding loan balance against it is often not worth the effort.
Priority in UCC liens follows filing order, with purchase-money security interests as an exception. The funder who tells you they can take everything is describing their contractual position, not necessarily their legal one.
Personal Property Not Used in the Business
A blanket business lien does not automatically extend to the owner’s personal assets. Personal vehicles, personal bank accounts, personal real estate, and household goods lie outside the reach of a UCC-1 filed against the business entity, unless the agreement includes a personal guarantee accompanied by a separate security agreement on personal assets. Most MCA agreements stop at the personal guarantee; fewer include a separate personal security agreement.
The personal guarantee exposes the owner to a judgment for the debt, but converting that judgment into seizure of personal assets requires additional steps: identifying non-exempt personal property, obtaining a writ of execution, and enforcing it against specifically identified assets. Exempt assets under state law, which vary by jurisdiction but commonly include a homestead, personal vehicle to a certain value, and certain retirement accounts, are protected even from judgment execution.
Future Receivables Not Yet Earned
The MCA’s claim to future receivables is the commercial core of the transaction. In bankruptcy, courts have examined whether a funder can hold a perfected security interest in receivables that did not exist at the time of filing. In re Watchmen Securities LLC, decided in the Southern District of Indiana in November 2024, addressed this question directly, concluding that a debtor cannot transfer rights to payment that do not yet exist. The implications for MCA funders seeking to enforce lien rights against future receivables in bankruptcy are significant.
Exempt Business Assets Under State Law
Several states provide protections for small business assets, limiting what a creditor can seize even following a valid judgment. The nature and scope of these exemptions varies considerably, and in some states they apply only to sole proprietors rather than to corporate or LLC entities. Determining what is actually protected in your jurisdiction is a question of local law that deserves specific legal analysis rather than general reassurance.
Assets Transferred Before Default
Assets transferred before default, if done without fraudulent intent and for reasonable value, may lie outside the funder’s reach. But fraudulent transfer law is exacting about timing, value exchanged, and the financial condition of the transferring business. A transfer made while insolvent, for no consideration, to a related party is the definition of a fraudulent conveyance. A transfer made at fair market value to an arm’s-length buyer, well before any default, is something else entirely.
Consultation is where the specific facts meet the applicable law, and where what you thought were hopeless exposures become problems with solutions.
