A lien is a legal claim placed on an asset to secure a debt, giving the lienholder the right to force a sale of that asset if the debt goes unpaid. Buyers must confirm a target's assets are free of unwanted liens before closing.
Worked example
| Item | Detail |
|---|---|
| Asset | Delivery trucks |
| Existing equipment lien | $40,000 |
| Required action | Payoff at closing |
| Handled via | Escrow disbursement |
The seller's $40,000 lien is paid off from proceeds at the closing table so you receive the trucks free and clear.
Why it matters when buying a business
Undisclosed liens transfer with assets in some deals and can leave you liable. Order a UCC lien search during due diligence, require the seller to clear or pay off every lien at closing, and get a lien-free warranty in the contract. Your SBA lender will insist on a clean first-position lien for its own collateral.
