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Business lien

A business lien is a legal claim or right against a business’s assets—such as property, equipment, or receivables—used as collateral to satisfy a debt or enforce a financial obligation. Liens are often filed by creditors, lenders, or tax authorities and can impact the business’s ability to sell assets or secure future financing.

About Business lien

What Types of Liens Can Be Placed on a Business?

Liens can be either voluntary (agreed upon, such as a loan secured by business assets) or involuntary (imposed without the business’s consent). Common types include:

  • Tax Liens: Filed by the government for unpaid taxes (federal, state, or local).
  • Judgment Liens: Resulting from court judgments against the business.
  • Mechanic’s Liens: Claimed by contractors or suppliers for unpaid work or materials.
  • UCC Liens (Uniform Commercial Code): Filed by lenders when a loan is secured by specific business assets.
  • Consensual Liens: Typically established through loan agreements (e.g., equipment financing).

Each lien affects the business’s creditworthiness and may limit its ability to transfer or sell assets.

How Are Business Liens Relevant to KYB (Know Your Business)?

KYB (Know Your Business) regulations require financial institutions and certain service providers to verify the legitimacy and financial standing of businesses before onboarding them. Lien checks are a critical part of this process.

Liens can signal red flags such as:

  • Ongoing financial distress
  • Legal disputes or unpaid obligations
  • Potential insolvency or fraud risk

Conducting a lien check allows institutions to assess credit risk, comply with anti-money laundering (AML) laws, and protect themselves from exposure to bad actors.

How Can Businesses or Third Parties Conduct a Business Lien Search?

To perform a business lien check, you can:

  1. Search the Secretary of State (SOS) database: Most U.S. states allow UCC lien searches through their official websites.
  2. Check with county clerk or recorder offices for real estate or judgment liens.
  3. Use commercial lien search services like LexisNexis, Experian Business, or Dun & Bradstreet.
  4. Consult public records or court filings for litigation-based liens.

A comprehensive search includes UCC filings, tax liens, and court judgments to give a full picture of the business’s encumbrances.

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