The buyer’s attorney will find the filing before you mention it. Every competent acquisition begins with a UCC search, a lien search, and a review of the secretary of state records in every jurisdiction where the business operates or is organized. The UCC-1 financing statement your MCA funder filed two years ago, the one you forgot about or assumed would disappear after payoff, will appear on that search. And it will generate questions that slow or collapse the transaction if you are not prepared to address them.
Buyers Discover Liens During Due Diligence
A buyer conducting a standard asset purchase will order a UCC search early in the due diligence process. The search reveals every active financing statement filed against your business entity. Each filing represents a potential claim against the assets the buyer intends to acquire. A single UCC-1 from a paid-off MCA can trigger the same initial concern as a lien from an active creditor, because the search result does not distinguish between the two. The filing is either present or absent. Its continued presence signals an unresolved encumbrance.
Most buyers will not proceed past the letter of intent stage without a clean collateral picture, or at minimum a clear path to resolution before closing. The filing itself becomes a negotiating obstacle before anyone examines the underlying obligation.
Blanket Liens Cover Everything the Buyer Wants
MCA funders almost always file blanket liens. The collateral description in the UCC-1 reads “all assets” or uses the equally broad formulation of accounts, inventory, equipment, general intangibles, and proceeds. This means the lien nominally covers every tangible and intangible asset in the business: the equipment, the receivables, the intellectual property, the customer contracts, the trade name, the goodwill.
In an asset purchase, the buyer is acquiring precisely these items. The blanket lien sits on top of all of them. Even if the buyer is purchasing only specific assets, the breadth of the lien creates ambiguity about whether those specific assets can be conveyed free and clear. The buyer’s counsel will insist on termination of the filing before closing or, at minimum, a release of the specific assets being purchased.
A blanket UCC lien on a business being sold is the equivalent of selling a house with a mortgage the buyer did not agree to assume. The sale does not eliminate the lien. The lien eliminates the sale.
The Funder May Refuse or Delay Termination
You have paid off the MCA. You sent the demand for termination. The funder has not responded, or responded with a vague acknowledgment that stops short of filing the UCC-3 termination statement. Meanwhile, the buyer’s timeline is progressing. The purchase agreement has a closing date. The buyer’s financing has a commitment expiration. Every day the lien remains on record is a day closer to a failed closing.
Some funders process termination requests within a week. Others take months. Some have gone out of business entirely, leaving orphaned UCC filings with no responsive party to authorize the termination. The twenty-day window provided by UCC Section 9-513 provides a statutory framework, but enforcing that framework when the funder is unresponsive requires additional steps that consume time you may not have.
Multiple Funders Create a Priority Dispute
Business owners who have taken multiple MCAs often have multiple UCC filings from different funders, filed at different times, creating a layered priority structure. The first funder to file holds the senior position. Subsequent funders hold subordinate interests. When the business is sold, each funder must release its lien or be paid from the sale proceeds in priority order.
Coordinating releases from three or four funders, each with different contact procedures, different response times, and different requirements for authorizing a termination, transforms a straightforward asset sale into a multiparty negotiation. The buyer, observing this complexity, may reduce the purchase price to reflect the risk and delay, or may walk entirely. I have watched transactions stall at the thirty-yard line because a junior lienholder could not be located.
The Purchase Price Gets Reduced
Even when the liens can be cleared, their presence during negotiations affects the price. A buyer who discovers active UCC filings during due diligence perceives elevated risk. The risk may be manageable, but its presence on the public record shifts the negotiating dynamic. The buyer argues that the cost and delay of clearing the liens should be reflected in the purchase price. The seller argues the liens will be terminated at closing. The difference between those positions is often measured in five or six figures.
Escrow arrangements can bridge the gap. Funds are held in escrow pending confirmation that all liens have been terminated. But escrow adds transaction costs, extends the timeline, and introduces a post-closing contingency that most buyers prefer to avoid. The cleaner approach, always, is to clear the filings before the business goes to market.
Stock Sales Do Not Eliminate the Problem
Some sellers believe that structuring the transaction as a stock sale or membership interest transfer, rather than an asset purchase, avoids the UCC lien issue. It does not. In a stock sale, the buyer acquires the entity, and the entity’s assets remain subject to the existing liens. The filings follow the entity. The buyer inherits the encumbrances. A buyer’s counsel performing due diligence on a stock purchase will flag the same UCC filings and demand the same resolutions.
The distinction between asset sales and stock sales affects tax treatment, liability succession, and contract assignment. It does not affect the buyer’s insistence on clean collateral. That demand is constant regardless of deal structure.
Expired Filings Still Appear on Searches
A UCC financing statement is effective for five years from the date of filing. If the funder did not file a continuation statement before the five-year mark, the filing lapses and the security interest becomes unperfected. But lapsed filings do not automatically disappear from the public record. They remain in the database, visible on searches, until the filing office purges them. Some jurisdictions retain lapsed filings for a year after lapse. Others retain them indefinitely.
A buyer’s search may surface filings that lapsed two years ago. The buyer’s attorney, exercising appropriate caution, will ask the seller to confirm that the filing has lapsed and that no continuation was filed. This confirmation takes time. It requires reviewing the filing history, obtaining a certified search, and possibly requesting a statement from the original funder. The expired filing is not a legal obstacle, but it is a practical one, and in a transaction governed by deadlines, practical obstacles have real cost.
Selling a business requires transferring clean title to the assets the buyer is purchasing. UCC filings are obstacles to that transfer, regardless of whether the underlying obligations have been satisfied. The time to address those filings is before you engage a broker, before you list the business, and before a buyer’s search reveals what you could have resolved months earlier.
A consultation about your specific filings and the steps required to clear them is where this process begins. That first conversation assumes nothing and costs nothing.
