A blanket lien is a security interest over all, or nearly all, of a business's assets: receivables, inventory, equipment, cash accounts and intangibles, including assets acquired later. The lender creates it in a security agreement and makes it public by filing a UCC-1 financing statement with the state. Until it is released, any new lender either sits behind it or needs the first lender's agreement, and most loan agreements forbid granting a second lien at all. Before refinancing, search the filings against your company, confirm which are still live, and get every paid-off lender to file a UCC-3 termination.
- What it is
- A lender's security interest in all, or nearly all, business assets
- How it becomes public
- A UCC-1 financing statement filed with the state
- Where it's filed
- Usually the state where the company is organized
- What it doesn't reach
- Real estate, which needs a mortgage
- How long a filing lasts
- Five years, unless the lender files a continuation
- How it's removed
- A UCC-3 termination statement
Two documents: the security agreement and the UCC-1
A blanket lien is created by the security agreement you sign with the lender, usually as part of the loan documents. It says that the company grants the lender a security interest in a list of collateral, often every category the Uniform Commercial Code recognizes, now owned or later acquired, and everything those assets turn into when sold or collected.
The UCC-1 financing statement is the public notice. It is a short form filed with the state that names the debtor, the secured party and the collateral. A filing that says "all assets" is enough. Filing is what gives the lender priority over later creditors: in most cases, the first to file wins. That is why the UCC-1, not the loan balance, is what a new lender reads first.
The two can drift apart. A loan can be repaid while its UCC-1 stays on file for years. A filing can say "all assets" while the security agreement covers only equipment. A new lender's search sees only the filing, so the filing is what you have to fix.
What a blanket lien covers, and what it doesn't
"All assets" reaches further than most owners expect, but not everywhere. For some kinds of collateral, a UCC-1 alone is not enough, and a lender must do something more to have a lien that holds up.
| Asset | Covered by a blanket lien? | How a lender perfects it |
|---|---|---|
| Receivables | Yes | UCC-1 filing |
| Inventory | Yes | UCC-1 filing |
| Equipment and machinery | Yes, including equipment bought later | UCC-1 filing; fixtures may need a county fixture filing |
| Intangibles: trademarks, software, contract rights, licenses | Yes, subject to any restriction in the underlying contract or license | UCC-1 filing; lenders usually also record against registered patents and trademarks, and a registered copyright needs a Copyright Office filing |
| Bank deposit accounts | Yes, as a grant | Control, usually through a deposit account control agreement; a filing alone does not perfect it |
| Titled vehicles | Yes, as a grant | Noting the lien on the certificate of title |
| Real estate | No | A recorded mortgage or deed of trust |
| Lawsuits the company brings (commercial tort claims) | Only claims that already exist and are specifically described; future claims can't be covered in advance | A specific description in the security agreement and the filing |
Two features make a blanket lien stickier than a lien on one machine. It covers after-acquired property, so new equipment and new receivables fall under it automatically. And it covers proceeds, so when inventory is sold and becomes a receivable, and the receivable is collected into a bank account, the lender follows the value the whole way.
How an existing blanket lien blocks new lenders
A new lender asked to lend against the same assets sees three problems. First, priority: its lien would rank behind the existing filing, so in a default the first lender is paid from the collateral first. Second, the existing loan agreement: most contain a limit on liens and a negative pledge that forbid granting any other lien without consent, so a second lien could put the company in default on its first loan. Third, cross-default: a default on either loan can trigger the other.
So a new lender will usually insist on one of four outcomes before it funds.
| Outcome | What happens | When it fits |
|---|---|---|
| Payoff at closing | The new loan repays the old lender, which releases its lien | A refinancing; the most common answer |
| Subordination or intercreditor | The existing lender agrees to rank behind, or the two split the collateral | Two lenders that each want different assets, such as an ABL and a term loan; see intercreditor agreements |
| Purchase-money carve-out | The new lender finances and takes a first lien on only a specific asset | Equipment financing; see equipment loans alongside senior debt |
| Partial release | The existing lender releases specific collateral by amendment | A sale of assets, or a lender willing to narrow its lien |
Merchant cash advance funders deserve special mention. Many file UCC-1s claiming all assets, even for small advances, and each new advance may bring another filing. A company that has taken several can have a stack of all-asset filings from different funders. Clearing them is part of any refinancing out of merchant cash advances, and a lender will not fund until it knows each one will be released.
A new lender reads the filings, not your memory of what you paid off. Search before you apply.
Finding the filings against your company
For a corporation or LLC, UCC-1s are filed with the secretary of state (or equivalent office) in the state where the company was formed, which may not be the state where it operates. Search there, under the company's exact legal name as it appears on its formation documents. Filings under a misspelled name or an old name can still matter, so search variations and any prior names. Most states offer an online search; a lien search from a filing service is more thorough and also covers other records.
- State UCC records for financing statements against the company.
- County records for fixture filings and anything recorded against real estate the company owns.
- Federal and state tax liens, which are filed separately and follow different rules; see federal tax liens.
- Judgment liens, filed where the judgment was entered or recorded.
- Filings against the owners personally, if they will guarantee the new loan.
Each filing has a lapse date. A UCC-1 is effective for five years from filing and lapses unless the lender files a continuation in the six months before it expires. A lapsed filing no longer gives the lender priority, but it may still appear in search results, so a lender reviewing your file will want to see the dates.
Clearing old filings before a refinancing
Every filing that isn't securing a live loan should be terminated before you go to market. The instrument is a UCC-3 termination statement, filed with the same office as the UCC-1.
| Situation | What to do |
|---|---|
| Loan paid off, lender cooperative | Ask the lender to file the UCC-3 and send you the filed copy |
| Loan paid off, lender unresponsive | Send a written demand; once no debt or commitment remains, the lender must file a termination within 20 days of the demand. If it doesn't, the UCC lets the debtor file the termination itself |
| Loan to be repaid by the new loan | Get a payoff letter that commits the lender to file the UCC-3 on receipt of the payoff |
| Lender no longer exists or was acquired | Find the successor; if there is none, the demand process and a debtor-filed termination are the fallback |
| Filing covers more than the loan did | Ask for a UCC-3 amendment narrowing the collateral description |
| Merchant cash advance still outstanding | Resolve the advance first; see refinancing merchant cash advances |
Keep the filed UCC-3s with your company records. The step-by-step for a stubborn former lender is in removing a UCC filing from a lender you already paid off.
What a new lender will ask for
Our checklist for a line of credit or asset-based loan asks for a debt schedule and UCC position: every loan, lease and advance, with the lender, balance, payment and the filings against the company. Lenders for term loans and SBA loans ask for the debt schedule too, with copies of the notes being refinanced. A clean debt schedule that already reconciles to the UCC search saves a round of questions.
When Transparent prepares a file, the debt schedule and UCC position go in together from the start, so a filing that doesn't match a live loan can be cleared while lenders review the credit rather than surfacing at closing. If you already have a lender with a blanket lien and want to add another, getting another loan when your bank has a blanket lien covers the options in more depth.
Common questions
- Is a UCC-1 filing the same as a lien?
- Not quite. The lien is created by the security agreement you sign. The UCC-1 makes it public and sets its priority against other creditors. A filing without a live loan behind it is still a cloud on your title to your assets until it is terminated.
- Does a blanket lien cover my house or my personal assets?
- No. A blanket lien on the business covers the business's assets, not yours. A personal guarantee is different: it makes you liable for the debt, so an unpaid lender can sue you and pursue your personal assets. A lien on a specific personal asset, such as your home, needs a separate mortgage.
- Can I get a second loan while a blanket lien is in place?
- Sometimes: with the first lender's consent, through a subordination or intercreditor agreement, or as purchase-money financing of a specific asset. Without consent, most loan agreements forbid granting another lien.
- How long does a UCC-1 stay on file?
- It is effective for five years and then lapses, unless the lender files a continuation in the six months before it expires. Paying off a loan does not remove the filing; a UCC-3 termination does.
- Do merchant cash advance funders file UCC liens?
- Many do, often claiming all assets. Several advances can leave several all-asset filings, and a refinancing lender will need each one resolved and terminated.
- What if a filing is against a company with a name like mine but isn't mine?
- Keep a record showing the filing's debtor is a different entity, such as a different state identification number or address. Lenders see this often; they need it documented, not removed.