Financing does not disappear when a UCC lien exists. It shifts. Some lenders exit the conversation; others enter it with different structures, different priorities, and different tolerances for the complexity that a lien introduces. Understanding which path applies to your situation is more useful than the general advice to “pay off the lien first.”
There are six approaches that work in practice, each with conditions and trade-offs that no generic guide will specify.
1. Negotiate a Partial Release From the Existing Creditor
A blanket lien covering all business assets does not have to remain a blanket lien. The secured party can file a UCC-3 amendment that removes specific assets from the collateral description, leaving those assets free for a new lender to take as collateral. This is called a partial release, and it requires the existing creditor’s cooperation — which, in many cases, you can obtain.
Creditors agree to partial releases when the released assets do not materially impair their position in the remaining collateral. If you owe a modest balance relative to your total asset value, the argument for releasing specific equipment or receivables is straightforward. The new lender then takes a first-lien position on the released assets and proceeds with the loan.
2. Obtain a Subordination Agreement
Where a partial release is not available, a subordination agreement may accomplish the same practical result. The existing creditor agrees to step behind the new lender in priority for a specific tranche of collateral or for the transaction overall. The existing lien remains on file and remains valid; it simply loses first priority to the new lender for the agreed purpose.
Some lenders — particularly SBA-approved lenders operating under 7(a) program requirements — demand first-lien position as a condition of the loan. Others will accept a negotiated second position. The SBA’s own guidelines on lien subordination acknowledge the practice and provide a framework for it, which means the door is not closed merely because a government-backed loan is involved.
A subordination agreement is a contract between creditors, not a gift from one to another. The terms matter. Subordination for one transaction does not imply subordination for all purposes, and the original creditor retains all other rights under its original agreement.
3. Work With Lenders Who Accept Second-Lien Positions
Not every lender requires a first-lien position. Revenue-based financing companies, community development financial institutions, and certain alternative lenders will take second position on collateral if the cash flow and credit profile support the loan. The trade-off is typically a higher cost of capital — second-lien lenders price the additional risk into the rate — but the transaction is executable.
The key is identifying lenders whose underwriting criteria accommodate the existing lien structure rather than applying broadly and encountering the lien as a surprise. A business attorney or commercial broker who knows the lending market can identify which institutions are likely to consider the application.
4. Use Collateral the Existing Lien Does Not Cover
A specific lien covering only named equipment or receivables leaves everything else available. Even a blanket lien under Article 9 typically has definitional limits: it covers assets the business owns as of the filing date and after-acquired assets of the same type, but it may not reach assets acquired through a new subsidiary, real property (which is governed by real estate law, not Article 9), or intellectual property in some formulations.
Real estate equity, in particular, is often available as collateral even when a UCC blanket lien is on file, because Article 9 does not cover real property interests. A commercial mortgage or a HELOC against business real estate proceeds on entirely separate legal tracks and is not subordinate to a UCC filing.
5. Refinance the Underlying Debt Into the New Loan
If the debt underlying the existing lien is still active, the cleanest resolution may be to refinance it. The new lender pays off the existing creditor as part of the transaction, the existing lien is terminated, and the new lender takes a first-lien position from the outset. This requires the new loan to be large enough to cover both the existing payoff and the additional capital you need.
Refinancing is not available in every situation — the existing creditor may have prepayment penalties, the new lender may not wish to pay off a specific type of debt, or the combined loan amount may not pencil for the new underwriting criteria. But when it is available, it removes the subordination question entirely.
6. Address the Lien Directly Before Applying
The option that most business owners overlook is the simplest: resolve the lien before the loan application begins. If the underlying debt is paid, demand termination under UCC Section 9-513. If the debt is disputed, engage counsel to challenge the filing. If the lien is from a merchant cash advance that is still active, negotiate a payoff and termination as a precondition to the new financing.
Lenders who decline an application due to a UCC filing will often agree to hold the file open for thirty or sixty days while the borrower resolves the issue. Starting that process before approaching lenders — rather than after the first denial — preserves options and avoids the reputational cost of multiple declined applications on the same credit profile.
The presence of a UCC lien is a financing constraint, not a financing prohibition. Every constraint has a structure around it, and the structure worth pursuing depends on the specific lien, the specific lender, and the specific use of proceeds. Those details are exactly what an attorney who handles commercial lending disputes is equipped to work through. Consultation is where this conversation begins.
