Best Practices: Insights Regarding Liens Involving Brokerage Accounts

For many lenders, collateral perfection remains one of the most critical — yet often misunderstood — aspects of SBA compliance. Among the collateral types that present unique challenges are brokerage and other securities accounts. A common misconception is that a standard UCC-1 financing statement is sufficient to perfect a lien on such an account. In reality, the Uniform Commercial Code (UCC) imposes specific requirements for obtaining “control” over a securities account. Without control, the bank’s lien is not perfected, creating compliance risks and the possibility of SBA repair or denial of the guaranty.

While lenders often take a blanket lien on all business assets through a UCC-1 filing, this filing alone does not provide priority protection against competing secured parties or subsequent creditors when securities accounts are involved. Article 9 of the UCC makes clear that perfection of a lien on a securities account requires one of the following methods:

1. Becoming the securities intermediary’s customer with respect to the account;
2. Entering into a control agreement with the securities intermediary and the debtor; or
3. Obtaining an acknowledgment of control from the securities intermediary in favor of the secured party.

Absent one of these steps, the lender’s lien remains vulnerable — even if a UCC-1 has been filed.

In SBA transactions involving brokerage or stock accounts, the most practical and cost-effective method of perfection is through a control agreement. This agreement, entered into by the lender, the borrower, and the securities intermediary (the brokerage firm), obligates the intermediary to follow the lender’s instructions regarding disposition of funds and securities in the account without the borrower’s further consent. For SBA lenders, documenting this step is essential. In the event of borrower default, and as part of the guaranty purchase process, the SBA requires evidence of perfected liens — particularly when the loan would be undersecured without the pledged securities account.

Because the brokerage firm is not a party to the SBA loan, it has little incentive to assume additional risk or liability by adopting the lender’s preferred control agreement. As a result, while some negotiation is possible, brokerage firms often insist on using their own standard, non-negotiable form. Lenders should therefore review these forms carefully to ensure they include the following key provisions:

• Identification of the pledged account by account number;
• Acknowledgment by the securities intermediary that it will follow the lender’s instructions regarding disposition of funds;
• Borrower’s consent confirming the pledge of the account; and
• A prohibition on termination of the agreement without the lender’s consent, to protect against unauthorized release.

For lenders taking securities accounts as collateral, it is essential to establish a clear process for control agreements and to work closely with borrower’s counsel and securities intermediaries to mitigate risk and preserve collateral value.

For further assistance, please contact the attorneys at Starfield & Smith, P.C. at 215-542-7070 or info@starfieldsmith.com.