An existing UCC lien does not automatically prevent factoring, but it can block the transaction if priority over the receivables cannot be resolved. The factor needs a clear claim on the receivables it is buying. Priority must be resolved or knowingly accepted before funding, often through a payoff, release, subordination, carve-out, or intercreditor agreement.
Businesses that have taken a term loan, a line of credit, or an equipment loan may well have a UCC-1 on file. Treat it as an ordinary part of the setup rather than a problem with your business.
Why Priority Decides the Outcome
A UCC-1 financing statement is a public notice that a lender claims an interest in specific collateral. When two lenders claim the same collateral, the Uniform Commercial Code sorts out who wins.
Under UCC section 9-322(a), conflicting perfected security interests rank according to priority in time of filing or perfection. A perfected security interest has priority over a conflicting unperfected one. This is the first-to-file-or-perfect rule, and it is why the date on an existing filing matters more than the size of the loan behind it.
A factor buying your receivables wants first position in them. If your bank filed three years ago against all assets, it generally has priority, assuming its security interest remains attached and perfected and no UCC exception changes the result. The factor can ask the bank to step behind on receivables, to carve them out, or accept a lower position and price accordingly.
| Feature | Unsecured | Secured |
|---|---|---|
| Collateral | None | Required |
| Approval Speed | 24-48 hrs | 2-4 weeks |
| Credit Score | 500+ | 650+ |
Blanket Lien or Specific Collateral
The first thing to establish is what the existing lender’s collateral actually covers. The UCC-1 gives public notice, but the grant itself sits in the underlying security agreement, so review the filing together with that agreement, any amendments, and payoff or release documentation.
A blanket lien covers all assets, usually described as “all personal property now owned or hereafter acquired”. Accounts receivable fall inside it. This is standard for bank lines of credit and many term loans, and it is the case that requires negotiation.
A specific collateral lien covers a named asset. An equipment loan on a CNC router may be limited to the financed equipment and related proceeds, but some agreements grant broader or cross-collateralized liens. Where the grant is genuinely narrow, your receivables sit outside it, and no negotiation is needed.
Run the UCC search in the correct filing jurisdiction. For an LLC or corporation, that is generally its state of organization, while different location rules apply to individuals and some unregistered entities. The search occasionally reveals a stale filing from a paid-off loan that may need to be terminated.
How Consent Actually Gets Obtained
The factor’s underwriter identifies the existing filing and contacts the lienholder, or asks you to. In practice, both happen, and a call from you first can move faster than a cold request from a company your bank has never dealt with.
What the existing lender is weighing is straightforward. Does releasing its claim on receivables damage its position? The answer depends on how that loan was underwritten and what else secures it, which is why some requests clear quickly and others do not.
Allow extra time. Lien-consent or subordination requests can take days or weeks, depending on the existing lender. This step is often what extends a factoring setup beyond the quoted timeline, and our breakdown of how long invoice factoring takes to set up shows where it lands in the sequence.
If the lender refuses outright, possible routes include a payoff and replacement of the existing facility, a carve-out, or second-position factoring.
What a Subordination or Intercreditor Agreement Contains
These are negotiated documents rather than forms, but the same terms recur:
| Term | What it settles |
| Collateral description | Exactly which assets are subordinated, usually accounts and their proceeds |
| Priority statement | Who ranks first in that collateral and who ranks behind |
| Standstill provisions | Whether the junior lender must wait before enforcing |
| Payment arrangements | How collections are applied between the two lenders |
| Notice requirements | What each lender tells the other, and when |
| Termination | What ends the agreement and releases the subordination |
A subordination agreement is the narrower instrument: one lender agrees to rank behind another in specified collateral. An intercreditor agreement is broader and governs the ongoing relationship between the two lenders, including enforcement and the handling of proceeds. Factoring deals use one or the other depending on how entangled the facilities are.
Have your attorney read whichever you are asked to sign. The borrower may be asked to join, consent to or acknowledge the agreement, and its operating obligations can be affected, so counsel should review it.
Carve-Outs and Second-Position Factoring
A carve-out removes accounts receivable from the existing lender’s collateral while leaving everything else in place. Some lenders may prefer this to a full subordination because the change is contained and easier to document.
Second-position factoring means the factor accepts a junior claim. Fewer factors will do it, and advance rates may be lower and pricing higher, because the factor is accepting that another creditor stands ahead of it in a default. It is a real option when the senior lender will not move, and it is worth comparing against the cost of refinancing the senior facility instead.
Pricing shifts across all of these arrangements. Our guide to invoice factoring rates covers what drives the number. If you only need to convert a small number of invoices rather than an ongoing facility, single invoice factoring is a different arrangement with its own considerations.
Apply for Invoice Factoring with Delta Capital Group
Delta Capital Group provides invoice factoring and working-capital options to businesses across the country. Existing lender relationships are a normal part of underwriting. Approvals happen in as little as 24 hours. Minimum qualifications are 6 months in business, $15,000 in monthly revenue, and a 500 credit score. Apply at deltacapitalgroup.com.
Frequently Asked Questions
Can I factor invoices if my bank has a blanket lien?
Potentially. The factor will generally need the senior lender to consent, subordinate, carve out the receivables, or otherwise resolve priority, unless the factor accepts a junior position. Whether the lender agrees depends on how its own loan was underwritten.
How long does a subordination take to arrange?
It can take days or weeks, depending on the existing lender’s internal process. Larger institutions can take longer. Starting the conversation with your lender before you apply may shorten it.
What if my lender refuses to subordinate?
Possible routes include a receivables carve-out, payoff or refinancing of the senior facility, or a factor willing to accept junior priority. Each is workable under different circumstances.
Does an equipment loan block factoring?
Not necessarily. Some equipment loans are limited to specific equipment and proceeds, while others sit inside broader collateral packages. Check the actual security documents and filings rather than assuming.
What is second-position factoring?
An arrangement where the factor knowingly takes a junior claim behind an existing lienholder. A junior position may result in lower advance rates, higher pricing, or fewer available factors, because the factor carries more risk.
