When an MCA funder wires you the money, they’ve already filed a UCC-1 against everything your business owns. Most business owners don’t find out until the funder is using it to drain their accounts. That’s by design.
Short answer: A UCC-1 lien gives the MCA funder a legal claim on your receivables, your bank deposits, your credit card processing, and in many cases every dollar that flows into your business. They use it to send notices to your processor, your customers, and your bank — redirecting your money to them, before it ever reaches you. There’s no court order required for most of these moves. The lien is the weapon.
If you have an MCA out, or you’re considering taking one, you need to understand exactly how the UCC gets used against you. Here are 7 specific moves funders make.
1. They file the UCC-1 the day they fund you
Most business owners think the UCC gets filed if they default. Wrong.
The UCC-1 is filed the same day the wire hits your account, sometimes within hours. The funder isn’t waiting to see what you do, they’re locking down their position from the start. The collateral description is usually broad — “all assets” or “all accounts, accounts receivable, and proceeds.” That one sentence gives the funder a claim on every dollar your business generates, going forward.
By the time you make your first daily payment, the lien is already public record.
2. They send Notices of Assignment to your credit card processor
This is the move that ends most businesses overnight.
The funder sends a Notice of Assignment to Stripe, Square, Fiserv, Shopify Payments, whoever processes your cards. The notice instructs the processor to redirect the daily settlements to the funder’s account, instead of yours. Processors comply almost immediately, because the UCC is on file, and they don’t want to be caught between two competing claims.
You wake up Tuesday, your Monday card sales are gone. Not delayed. Gone.
3. They contact your customers directly
If you’re B2B, this one is brutal.
The funder pulls your bank statements (they already had them from the application), identifies your top-paying customers, and sends each one a Notice of Assignment. The notice tells your customer they must now pay the funder directly, and that any payment made to you will not satisfy their obligation.
Your customer gets a letter from a law firm they’ve never heard of, telling them their vendor is in default, and they need to redirect payment. Most customers freeze. Some pay the funder to avoid getting dragged into a legal mess. Some terminate the relationship entirely. Either way, your AR pipeline collapses inside of a week.
4. They hit your factoring company or AR lender
If you already have a factor, or an asset-based lender, the MCA funder will go after them too.
They’ll send the UCC notice and demand subordination, or in some cases, claim priority over the existing liens. Now your factor is dealing with a competing claim, and the safest move for them is to stop advancing against your invoices, while they sort it out. Your one stable funding source goes dark, exactly when you need it most.
This is the move that turns a cash flow problem into a wind-down.
5. They force your bank into compliance
Most business bank accounts have a control agreement provision buried somewhere in the funder’s documents.
At default, the funder activates it — sending the bank a notice that the account is now subject to a security interest, and that funds should be held or redirected. Some banks fight this, most don’t. The ones that don’t fight will freeze the account while they figure out who has priority. Your operating account becomes untouchable for days, sometimes weeks.
Payroll runs hit. Vendor ACHs reverse. Subscription debits bounce. The damage compounds fast, and the bank has no incentive to move quickly.
6. They blanket your vendors and suppliers
This one is rarely talked about, but I’ve seen it more in the last 18 months.
The funder identifies the vendors on your bank statements — your inventory supplier, your 3PL, your SaaS providers — and sends notices to them as well. The notices don’t always have legal teeth against vendors (vendors aren’t account debtors in the receivables sense), but the funder doesn’t care. The point is the noise.
Your suppliers get spooked, they tighten terms, they move you to COD, they cut you off. Even after the MCA gets resolved, the relationship damage is often permanent.
7. They sell the UCC position to a more aggressive collector
When the funder decides you’re not going to pay voluntarily, they have an option that most merchants don’t see coming, they sell the file.
The UCC, the personal guaranty, the confession of judgment if there is one (in states where they’re still enforceable) — the whole package gets assigned to a collection firm, or a law firm that specializes in MCA enforcement. The new holder of the file is often worse than the original funder. They paid pennies on the dollar for the position, they have nothing to lose, and their entire business model is squeezing distressed merchants.
The harassment escalates. The lawsuits get filed faster. Settlement leverage shifts further away from you, every week.
What to do if a UCC lien is being used against you
The window to act is small.
Once the Notices of Assignment are out, your cash flow is already compromised, and clawing it back requires either negotiating the lien down, restructuring the debt, or in some cases challenging the validity of the underlying agreement. If you’re at this stage, or you can see it coming, get a business debt restructuring attorney involved before the next ACH attempt fails.
Every day you wait, the funder’s leverage grows, and yours shrinks.
