Glossary · legal

Lien

Also called security interest, encumbrance, charge.

A legal claim over property securing an obligation, entitling the holder to be paid out of that property if the obligation is not met.

Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.

What it means

Liens arrive by three routes and behave differently depending on which.

  • Consensual: you granted it, in a security agreement. Perfected by filing a UCC-1 for personal property, or by recording a mortgage or deed of trust for real property
  • Statutory: created by law without your agreement. Mechanic's and materialmen's liens, tax liens, landlord's liens in some states, warehouse and carrier liens
  • Judicial: created by a court process. Judgment liens, attachment liens

Attachment and perfection

Two distinct steps and the difference decides fights. A security interest attaches when value is given, the debtor has rights in the collateral, and the debtor has authenticated a security agreement describing it — at that point it binds the debtor. It is perfected when the additional step required by law is taken, usually filing a financing statement, which makes it effective against other creditors and a bankruptcy trustee. An attached but unperfected interest is close to worthless in the only situation where it matters.

In short-term funding

Merchant cash advance agreements almost invariably contain a security agreement granting an interest in accounts, receivables and often all assets, and authorise the filing of a UCC-1. Merchants sign a document titled "purchase agreement" and conclude no lien was created. One was, and it is on the public record within days.

Getting rid of them

A UCC-1 lapses after five years unless continued, but does not disappear on payoff — the secured party must file a UCC-3 termination. Stale filings from paid-off deals sit on the record and block later transactions.

Where this one catches people

"This is a purchase of receivables, not a loan, so there's no lien" is wrong in both directions. The purchase characterisation is about how the transaction is treated, not about whether security is taken, and the same document that says you are selling receivables typically also grants a blanket security interest as a protective measure. Read the security agreement section and the authorisation to file — they are in there, usually a few paragraphs above the signature.

Where you will meet this term

Merchant Cash Advance Working Capital Term Loan Equipment Financing Invoice Financing Asset-Based Lending

Read next

Blanket lienA security interest over substantially everything the business owns, perfected by a UCC-1 financing statement… General intangiblesThe UCC's catch-all collateral category for business property that is neither goods nor accounts — goodwill, … Judgment lienA lien created by recording a money judgment, attaching to the debtor's property in that jurisdiction and blo… Lien positionThe order in which secured creditors are paid out of the same collateral — decided almost always by who filed… Lien searchA pre-funding check of the public record for existing security interests, judgments and tax liens against a b… PerfectionThe steps that make a security interest effective against other creditors - for most business collateral, fil… UCC termination (UCC-3)A filing that removes an existing financing statement from the public record, made by the secured party once … UCC-1 financing statement (UCC-1)A short public notice filed with a state office announcing that a creditor claims a security interest in desc…

Lien — common questions

What does lien mean?

A legal claim over property securing an obligation, entitling the holder to be paid out of that property if the obligation is not met.

Where does lien catch people out?

"This is a purchase of receivables, not a loan, so there's no lien" is wrong in both directions. The purchase characterisation is about how the transaction is treated, not about whether security is taken, and the same document that says you are selling receivables typically also grants a blanket security interest as a protective measure. Read the security agreement section and the authorisation to file — they are in there, usually a few paragraphs above the signature.

Is lien the same as an interest rate?

Lien is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.

Which products does lien apply to?

Merchant Cash Advance, Working Capital, Term Loan, Equipment Financing, Invoice Financing, Asset-Based Lending.

Is there a worked example of lien?

Not on this entry. Where a term is arithmetic, the arithmetic is shown; this one is not primarily a calculation.

What else should I read alongside lien?

Blanket lien, General intangibles, Judgment lien, Lien position, Lien search.

Has this definition been checked?

Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.

Is this legal advice?

No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.

Can I suggest a term?

Yes — [email protected]. The glossary grows from what people are actually shown in contracts.