The merchant cash advance funder files the UCC lien before the funds arrive in your account. That sequence is not accidental. The filing is the first act of control in a relationship designed to keep the funder’s position secure and your options constrained. Understanding why the lien exists, and what mechanisms the law provides for its removal, is the difference between a business that remains tethered to an expensive advance and one that moves toward better financing.
Reason One: Establishing Priority Over Other Creditors
Under UCC Article 9, the first creditor to file a financing statement against a debtor’s assets generally holds the senior lien position. MCA companies file early and file broadly because priority is determined by the timestamp on the filing, not by the size of the debt or the nature of the collateral. A funder that records its UCC-1 before your bank, your equipment lessor, or your trade creditors has effectively claimed the first seat at the table in any future dispute over your assets.
The strategic implication is straightforward. By filing first, the MCA company ensures that if you default, or if the business encounters financial distress, its claim takes precedence. Every subsequent creditor must either accept a subordinate position or decline to extend credit. The lien, in this sense, functions as a territorial marker.
Reason Two: Discouraging Competing Financing
A blanket UCC lien on all assets tells prospective lenders that someone else already has a claim. Banks reviewing a loan application will flag the filing during their due diligence, and many will decline to proceed without evidence that the existing lien has been subordinated or terminated. SBA lenders are particularly sensitive to this, because the agency’s own lending requirements demand a clear or senior lien position on the collateral securing the loan.
This creates a dynamic that serves the MCA funder well. The business owner who cannot access conventional financing remains dependent on the MCA market, where factor rates and repayment terms are far less favorable. Whether the funder intends this outcome or merely benefits from it, the effect is the same: the lien restricts the borrower’s alternatives.
One does not need to attribute malice to the filing. The incentive structure alone explains everything.
Reason Three: Creating Leverage in Default Negotiations
When a business falls behind on its daily or weekly MCA remittances, the funder’s first response is rarely litigation. Litigation is expensive and slow. The UCC filing, however, provides a cheaper form of pressure. Because the lien encumbers the business’s assets on the public record, the funder can point to it as evidence of its secured position and use that position to negotiate from strength.
In practice, this means the funder can insist on restructured terms, additional collateral, or personal guarantees as conditions for forbearance. The lien is the silent partner in every default conversation, reminding the business owner that the funder’s claim is already on file and that any resolution must account for it.
Reason Four: Protecting Future Receivables
Most MCA agreements are structured as purchases of future receivables rather than as loans. The UCC filing secures the funder’s interest in those receivables, which is the very asset the funder has purchased. Without the filing, another creditor could claim an interest in the same receivable stream, and the MCA funder would have no public record to establish its prior claim.
The legal characterization of the MCA as a purchase rather than a loan has been contested in courts across several jurisdictions, with outcomes that vary depending on the specific terms of the agreement. But regardless of how the transaction is classified, the UCC filing serves the same purpose: it puts the world on notice that the funder claims a right to the business’s incoming revenue.
Reason Five: Facilitating Confession of Judgment
Before New York’s 2019 reform of CPLR Section 3218, many MCA agreements included confessions of judgment that allowed funders to obtain judgments without litigation. The UCC filing worked in tandem with the confession of judgment, providing the secured interest while the COJ provided the enforcement mechanism. For out-of-state defendants, the 2019 amendment effectively voided these confessions, but the UCC filing remains. And in states where confessions of judgment remain enforceable, the combination of a blanket lien and a COJ gives the funder a particularly powerful set of tools.
Reason Six: Simple Economics
Filing a UCC-1 costs very little. In most states, the filing fee is between twenty and fifty dollars. For that modest investment, the funder obtains a public record that affects the business’s creditworthiness, restricts its access to competing finance, and strengthens the funder’s position in any dispute. There is no incentive not to file. The cost is negligible, the benefit is substantial, and the filing requires no judicial approval or prior notice to the debtor.
How to Get the Lien Removed
Removal begins with the UCC-3 termination statement, the instrument by which a secured party cancels its financing statement. When the underlying obligation has been satisfied, Section 9-513 of the UCC requires the funder to file a termination within twenty days of receiving an authenticated demand from the debtor. The demand should be sent by certified mail with return receipt requested, and it should reference the filing number, the date of the original UCC-1, and the basis for your assertion that the obligation has been satisfied.
If the funder fails to file within the statutory period, you acquire the right to file a termination statement yourself. The procedure varies by state, but generally requires a sworn statement that the obligation has been satisfied and that the secured party has failed to terminate after demand. Some states allow this to be done online; others require an in-person visit to the secretary of state’s office.
For filings that were made without proper authorization or that exceed the scope of the agreement, the remedies are more aggressive. A court can order termination, and statutory damages of five hundred dollars per violation may be available. Actual damages, including lost financing opportunities, are recoverable if you can document the harm the improper filing caused.
California business owners gained additional protection as of January 2025 under an expansion of the Rosenthal Fair Debt Collection Practices Act, which now extends consumer-style protections to small business debts, including merchant cash advances. That statute provides another avenue for challenging abusive filing practices.
The process is not complicated. What makes it difficult is the funder’s incentive to delay, to ignore correspondence, and to leave the filing in place as long as possible. That incentive is why legal representation matters here. A letter from an attorney carries a different weight than a letter from the debtor, and the funder who ignores a demand letter from counsel does so with the knowledge that the next step is a motion, not another letter.
A first consultation with our office costs nothing and assumes nothing. The conversation begins with the filing itself.
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