Lien Definition | Business Lending Glossary

Definition

A legal claim a lender holds against a borrower's asset that gives the lender the right to seize and sell that asset if the debt is not repaid.

Explanation

When a business takes a secured loan, the lender typically files a lien against the pledged collateral. For business equipment, inventory, and receivables, this is done through a UCC-1 filing with the state. For real estate, it is recorded with the county. A blanket lien covers all of a business's assets, not just specific items. Many alternative lenders file blanket liens as part of their standard agreements. This can complicate future borrowing because new lenders will see existing liens and may require subordination agreements before advancing new credit.

Example

A technology services company takes a $50,000 MCA. The funder files a UCC-1 blanket lien covering all of the company's assets. Six months later, when the company tries to get equipment financing, the equipment lender requires the MCA funder to file a lien subordination agreement before they will proceed.

Why It Matters

Liens are often overlooked until they cause problems. Blanket liens from existing lenders can block access to future financing or slow it significantly. Always understand what liens exist against your business and ask new lenders what lien filings they will make before accepting any funding.

Frequently asked questions

How do I find out what liens are on my business?

UCC liens are public records. You can search the UCC registry of your state's Secretary of State office using your business name or EIN. Many states offer free online search tools. A lien search will reveal all active UCC filings against your business.

Does a lien affect my business credit?

A lien itself does not directly lower your credit score, but it signals to future lenders that your assets are encumbered. Multiple active liens — especially blanket liens — can make it difficult to secure additional financing or may result in worse terms.