What is a Lien?

A lien is a legal claim against an asset that allows a creditor to take possession of the property if you fail to repay a debt. When you pledge collateral for a business loan, the lender typically places a lien on that asset to protect their interest.

How Liens Work

When a lender places a lien on your property, they gain a security interest in that asset. If you default on the loan, the lender can seize and sell the asset to recover their money.

Liens are recorded publicly — usually through a UCC filing with your state's Secretary of State — so other creditors can see that the asset is already pledged as collateral.

Common Types of Business Liens

Businesses may encounter several types of liens:

• UCC liens: Filed under the Uniform Commercial Code, these cover business assets like equipment, inventory, and receivables
• Real estate liens (mortgages): Secured by commercial property
• Equipment liens: Specifically tied to financed equipment
• Blanket liens: Cover all current and future business assets
• Tax liens: Placed by the IRS or state for unpaid taxes
• Judgment liens: Result from court judgments against your business

Lien Priority

When multiple lenders have liens on the same asset, lien priority determines who gets paid first if the asset is sold. Generally, the first lender to file their lien has first position and gets paid first.

This is why lenders check for existing liens before approving loans — they want to know where they stand in the priority order.

Liens and Loan Applications

Existing liens affect your financing options:

• Assets with existing liens may not be available as collateral for new loans
• Multiple liens signal existing debt obligations to potential lenders
• Blanket liens can make it difficult to obtain additional financing
• Lenders may require subordination agreements from existing lien holders

Releasing a Lien

When you pay off a loan, the lender should file a lien release (UCC-3 termination statement) to remove their claim. Always confirm that liens are properly released after paying off debts — lingering liens can complicate future financing.