Merchant cash advance companies file UCC-1 financing statements for reasons that have nothing to do with your business’s trustworthiness and everything to do with their own position in the capital stack. Understanding those reasons is not an academic exercise. It is the starting point for getting the lien removed.
Reason 1: To Perfect Their Security Interest Before Anyone Else Does
Priority among competing creditors follows filing order. The funder who files first ranks ahead of every subsequent creditor for the same collateral. MCA companies file immediately after advancing funds — often the same day — precisely to capture first-lien position before any other lender can act. This is not malicious; it is the standard practice of every secured lender in the commercial market. But for a business that subsequently needs additional financing, the effect is identical regardless of intent: your collateral is encumbered, and later lenders are junior.
Reason 2: To Create a Mechanism for Receivable Interception
Many MCA agreements include a provision authorizing the funder to notify your customers or payment processor to redirect payments directly to the funder upon default. The UCC filing is the instrument that gives this provision legal force. Without a perfected security interest in the receivables, the funder’s demand to your customers would have no legal priority. With it, the demand can effectively redirect your revenue stream before you have any opportunity to respond.
Courts in several states have examined whether the UCC filing mechanism in an MCA context is consistent with the characterization of the transaction as a “purchase of receivables” rather than a loan. The answer has frequently been that the UCC filing itself suggests a secured lending structure, which subjects the transaction to lending regulations the funder may prefer to avoid.
Reason 3: To Secure a Deposit Account Control Agreement
Many MCA agreements authorize the funder to obtain a deposit account control agreement, or DACA, from your bank. A DACA gives the funder the contractual right to instruct the bank to freeze your account or sweep its balance upon a trigger event. The UCC filing in combination with a DACA is the enforcement structure that allows a frozen account to happen within hours of a default notification. The bank does not exercise judgment; it executes the instruction.
Reason 4: To Establish Leverage in Workout Negotiations
Even when enforcement is not imminent, the existence of a blanket lien creates leverage. A business that knows its bank account can be frozen, its customers redirected, and its equipment seized will approach a workout negotiation from a position of constraint. MCA companies are aware of this dynamic and factor it into their settlement calculations. The lien is not only a security device; it is a negotiating position.
Reason 5: To Protect Against Bankruptcy Preference Claims
In bankruptcy, a trustee may seek to avoid payments made to creditors within ninety days of the petition date as “preferences” if those payments allowed the creditor to receive more than they would in a Chapter 7 liquidation. A perfected security interest — established by a UCC filing — is a defense to the preference claim, because a secured creditor is entitled to the value of its collateral regardless of timing. Filing the UCC lien is, among other things, a method of insulating the funder from clawback in a subsequent insolvency.
Reason 6: To Deter Future Financing Without Their Knowledge
A blanket lien on the public record signals to every subsequent lender that the business is already encumbered. Some MCA companies rely on this as an indirect constraint on the borrower’s financing options: the debtor cannot obtain new credit that might dilute the funder’s recovery without the funder’s knowledge, because the new lender will discover the existing filing and either decline or require the funder’s consent. The lien is, in this sense, a form of continuing surveillance over the business’s capital structure.
How to Get the Lien Removed
The removal path depends on where the underlying obligation stands. If the advance is paid in full, the funder is required under UCC Section 9-513(c) to file a termination statement within twenty days of receiving an authenticated demand. Send that demand in writing, by certified mail, identifying the filing by document number. Retain the delivery confirmation. If twenty days pass without action, you have the right to pursue self-help termination procedures in states that allow them, seek a court order, or demand damages for the failure to terminate.
If the advance is still active, removal requires either a negotiated payoff, a settlement for less than the full amount, or — in cases where the underlying agreement is legally defective — a challenge to the filing’s validity. MCA agreements that are disguised loans may be subject to usury statutes, disclosure requirements, or consumer protection claims that undercut the lien’s foundation.
Where no debt ever existed, the filing was unauthorized from the outset and warrants a different response: a direct challenge through the Secretary of State’s office, a corrective amendment, or a court action for wrongful filing.
The leverage in any of these scenarios shifts considerably when the business is represented by counsel. A first call costs nothing and assumes nothing.
