If your existing bank line of credit is secured by a blanket UCC lien that reaches your receivables, those invoices are already pledged to the bank, and a factor can't buy them cleanly until the bank steps aside. You can still factor invoices from that position through one of three routes: the bank's consent and release, a subordination or intercreditor agreement that carves the receivables out, or paying off the line.
Can you factor invoices while a bank line of credit has a blanket UCC lien?
You can, once the bank's claim on those invoices has been dealt with. A blanket lien covers most or all of a business's assets. If your security agreement or the bank's UCC-1 financing statement describes the collateral as "all assets" or lists accounts, your receivables help secure the line.
UCC 9-109(a)(3) brings "a sale of accounts" within Article 9, so the factor's purchase runs on the same priority rules as the bank's loan. Three of those rules create the conflict:
- The bank's lien follows the invoice. Under UCC 9-315(a)(1), a security interest continues in collateral notwithstanding a sale "unless the secured party authorized the disposition free of the security interest."
- The earlier filer generally ranks first. UCC 9-322(a)(1) ranks conflicting perfected security interests "according to priority in time of filing or perfection." The bank filed when it opened the line, and the factor files after it.
- Selling anyway can trip a default. UCC 9-401(b) says a loan agreement that prohibits a transfer or makes it a default "does not prevent the transfer from taking effect." The sale goes through, the bank keeps its lien, and you may have handed it an event of default.
Start with a UCC search and your loan agreement
Find out exactly what's on file first. For a corporation or LLC, UCC 9-307(e) says a registered organization organized under a state's law "is located in that State," so search that state's UCC filing office. In California that's the Secretary of State, whose UCC page (checked October 6, 2026) points to UCC Connect for online debtor searches.
| What to pull | What to look for |
|---|---|
| UCC search on your exact legal name | Each secured party, filing date and collateral description |
| Loan and security agreement | Limits on selling assets or granting liens, events of default |
| Borrowing base certificate, if any | How much of the line depends on receivables |
| Customer contracts | Assignment clauses and payment terms |
| Aging report | Which customers and invoices a factor would buy |
Any other filer whose collateral reaches accounts, such as an equipment lender, a cash advance provider or an earlier factor, is one more party a factor will want resolved.
Three ways to clear the bank's lien for a factor
Each route gives the factor a first claim on the invoices it buys.
| Route | What the bank signs | Effect on your line | Fits when |
|---|---|---|---|
| Consent and release | Consent to the sale and a release of the accounts sold | Released accounts leave the borrowing base | You'll factor one or two customers |
| Subordination or intercreditor agreement | The factor ranks first on defined receivables, plus rules on payments, notices and defaults | Carved-out receivables stop supporting the line | You'll factor a defined slice on an ongoing basis |
| Payoff | Payoff letter, then a termination of its financing statement | The line closes | The bank says no, or the line is small next to your receivables |
Consent and release is the narrowest ask. Ask whether the bank will also amend its UCC-1 to narrow the collateral, since the factor's search will otherwise still show the broad filing.
Subordination keeps the bank's interest in the carved-out receivables but ranks it behind the factor's. UCC 9-339 says Article 9 "does not preclude subordination by agreement by a person entitled to priority." An intercreditor agreement goes further and sets working rules between the creditors: which accounts belong to whom, where customer payments land, who may contact customers and what happens on default.
Payoff ends the conflict, though the filing doesn't disappear by itself. Under UCC 9-513(c), once no obligation is secured and there's no commitment to make an advance, the secured party must send you or file a termination statement within 20 days after it receives your authenticated demand. If the same lien also secures a term loan with that bank, paying off the line alone won't meet that condition.
What your bank and the factor will each ask for
The exact list depends on the bank, the factor and your documents, but these points need settling in writing.
Your bank will want to know:
- Which receivables leave its collateral, by customer, invoice range or a dedicated collection account
- The factoring terms, including whether the factor can charge unpaid invoices back to you under a recourse arrangement
- A revised borrowing base and covenant calculation without the factored invoices
The factor will want:
- The bank's signed release or subordination, with an account description matching its purchase agreement
- A limit on the bank contacting factored customers, since UCC 9-607(a)(1) lets a secured party notify an account debtor to pay it after default, and earlier if the loan agreement allows
- A turnover process for factored invoices a customer pays into an account the bank controls
- Notice if the bank declares a default under your line
Our factoring agreement guide covers the clauses on the factor's side.
How UCC 9-406 decides who your customers pay
Under UCC 9-406(a), an account debtor, meaning your customer, "may discharge its obligation by paying the assignor until, but not after," it receives an authenticated notification that the amount has been assigned and that payment is to be made to the assignee. After a valid notice from the factor, a customer that keeps paying you hasn't discharged that invoice and may still owe the factor.
Under 9-406(c), a customer may ask the factor for reasonable proof of the assignment, and until the factor furnishes it, paying you still discharges the debt. Under 9-406(d), a term in your customer contract that prohibits assignment or requires the customer's consent is generally ineffective, subject to exceptions in the statute. That protects the sale from your customer contracts but does nothing about your bank, whose rights come from your loan agreement.
If you default while the bank's lien still reaches factored invoices, the bank can send its own notices under 9-607, and a customer holding two conflicting instructions may hold payment until the creditors sort it out. In notification factoring, the factor notifies customers at the start, so settle who notifies which customers before the first invoice is sold.
Worked example: carve-out versus payoff
These numbers are assumptions for illustration; your own loan documents and factoring offers set the figures that apply to you.
Assume $400,000 of eligible receivables, a $250,000 bank line with $150,000 drawn, a borrowing base of 80% of eligible receivables, bank interest of 9% a year, and a factor offering an 85% advance rate with a fee of 2.5% per 30 days. Customers pay in 30 days. Today the borrowing base is $320,000, capped at the $250,000 limit, leaving $100,000 to draw.
Carve-out: The bank releases $120,000 of invoices from two customers. The borrowing base falls to $224,000 and availability to $74,000. The factor advances $102,000, charges $3,000 and releases a $15,000 rebate when the customers pay.
Payoff: The factor buys all $400,000 and advances $340,000, and $150,000 of that retires the line, leaving $190,000.
| Per 30-day cycle | Carve-out | Payoff |
|---|---|---|
| Cash you can reach | $176,000 ($74,000 line plus $102,000 advance) | $190,000 |
| Factoring fee | $3,000 | $10,000 |
| Bank interest on $150,000 | $1,125 | $0 |
| Total financing cost | $4,125 | $10,000 |
| Bank line still open | Yes | No |
Under these assumptions the payoff frees $14,000 more cash for $5,875 more cost each cycle, so the carve-out is worth asking for first. Compare the offers you receive with our guides to invoice factoring rates and fees and factoring vs. a line of credit.
How to ask your bank for a carve-out
Raise it with the bank before a factor files anything, and bring a specific request.
- Get a written factoring proposal first. The bank can't judge a carve-out without the advance rate, fees, recourse terms and the accounts involved.
- Have an attorney read the loan documents. The loan agreement, security agreement and any guaranty define what consent you need and what counts as a default. This guide isn't legal advice.
- Call your relationship manager before you sign. Explain the cash need, such as a large customer on net 90 terms, name the accounts you'd sell and bring a revised borrowing base built from your own numbers.
- Get the answer in writing. Ask the bank to send its draft release or subordination to the factor's counsel. If the bank declines, price a factor-funded payoff or a refinance with another lender.
To compare options, EQ Funding routes one application to invoice factoring companies and business line of credit lenders who compete for your business. Each runs its own lien search and underwriting, and approval and terms vary by lender.