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Business lien

A business lien, also called a corporate lien, is a legal claim against a company’s assets — typically financial assets, real estate, vehicles, or other equipment — filed by an entity to which the company owes money. Liens show that the filing entity has an interest in these assets and that the assets can potentially be seized and sold to pay back the debt. 

Liens are often filed by:

  • Lenders who are owed repayment on a business loan

  • Governments (federal, state, local) for unpaid income and property taxes

  • Contractors who are owed payment for services provided

Frequently asked questions

Business liens typically come in one of three varieties:

  • Consensual liens: Sometimes, a lien is written into a loan or contract that a business willingly enters into. Any time a business puts up collateral as a part of an agreement, it is entering a consensual lien. Mortgages, auto loans, and business loans for the purchase of equipment often include built-in consensual liens. 

  • Statutory liens: When a business fails to pay or repay its obligations to a lender, contractor, or government, those parties can seek a statutory lien, which originate from the enforcement of a specific statute or law. A government may file a statutory lien (tax lien) against a business that hasn’t paid its taxes, for example. Likewise, a contractor may file a statutory lien (mechanic’s lien) if it is unpaid for services rendered.‍

  • Judgment liens: If a creditor sues a business for an unpaid debt and the court rules in favor of the creditor, a judgment lien can be filed against the business’s assets. This then empowers the creditor to seize the business’s assets in the event that the business continues to fail to repay the debt.

Know Your Business (KYB) is all about assessing a business’s risk so you can decide whether or not it’s a good idea to work with them. A thorough KYB process empowers you to make an informed decision about partnering with a business by surfacing risk factors that could draw the partnership into question. 

The presence of a business lien can be considered a risk factor for a number of reasons. On one hand, a lien may indicate that the business does not honor its obligations. On the other, a lien identifies a risk that the business could have its property seized — property that could be necessary to fulfill its obligations to you. Liens can also make it difficult for the business to receive new credit and funding, which could again jeopardize its operations and ability to fulfill its obligations.

In order to determine whether a business has a lien filed against it, you will need to conduct a business lien search. This search requires checking multiple sources, including the:

  • Secretary of State (SOS) office in each state where the business is registered

  • State or County Recorder’s offices in the states and counties in which the business operates

  • Internal Revenue Service (IRS) for businesses registered in the US

The process for querying each of these records and databases can vary significantly. Using an automated KYB solution capable of querying all available data sources at once can simplify and streamline the process.