By Ami Kassar Chances are, you've heard the word lien a few times, but do you really know what it means and the effect it can have on your business?A lien is a legal claim attached to a loan that acts as a security interest for a debt owed. The lender files a lien for the debt so that in the event the borrower cannot meet the obligations of the loan, the lender has the ability to sell the borrower's collateral, or assets, in order to recoup the loan funds. Liens often lurk in the background of small print paperwork, being overshadowed by their more well-known terms like interest rates and repayment terms. However, understanding the liens against your business can save you some major headaches, time and money.When you take out a loan for an item (be it property, a car, a piece of equipment or working capital for your business), the lender may file a lien in the state in which the business operates. This public notice alerts the business, and all other entities, that the lender will be able to secure some or all of its assets in case of default.The coveted spot for a lender is the first lien position. That is to say, every lender wants to be first in line to acquire the agreed upon assets should the borrower default on the loan. Liens are filed in succession, so at any given time a business could have a first lien, second lien and even third lien filed against it. This means that should you default on your loan, the lender with the first lien position is paid first, followed by any subsequent lenders with liens.When a lender takes a second or third lien position, it's a riskier situation for that lender and generally leads to higher interest rates for the borrower. This is why it's critical to evaluate your loans and make sure that you are getting the money you need at the right price. If a lender is unable to obtain first lien position on some or all of your assets, subsequent loans are likely to be either more expensive or impossible to obtain. Unfortunately, many small-business owners don't pay attention to this.In the case of short-term loans, or cash advances, many lenders will take a so-called blanket lien, which is a lien that gives them the right to seize all of the borrower's assets in the event of nonpayment instead of just a single asset. This can be dangerous for small-business owners, particularly if it's a first lien position. I've seen instances at my loan-brokerage firm where a client takes out a loan to procure a small piece of equipment and, without realizing it, the lender takes a blanket lien on all of his or her business's assets.In a dire situation, such as when a small-business owner needs a critical piece of equipment fast, some fine print regarding liens and other terms tend to be overlooked. This person will be in a rough position should he or she need to obtain additional financing in the future while still leasing that equipment, unless the equipment lender agrees to take a second lien position. Some lenders are happy to do this, while others remain steadfast in their lien position.Lenders are legally obligated to file a UCC-1 financing statement when they have a security interest in a borrower's assets. To check the liens against your company, go online to the Secretary of State website associated with the state your business is in and do a search of your business's name. Any UCC-1 forms filed against it should appear. You can also opt for a professional, fee-based lien search done by major credit bureaus or local law firms or title companies. These services generally cost $95 to $125, depending on agency. It's important to regularly check for any liens that may have been filed against your business, as some lenders might place a lien that is different than what's in your loan agreement. Or, you may want to try renegotiating a lien. While checking for liens is a fairly easy task, many owners get caught up in the day-to-day operations and don't take the time to do it. But I recommend making it a priority because it could prevent big problems for you down the road. Write to WSJsmallbusiness@wsj.com