Having good credit is important in the business world and for business growth. There are many benefits to having a good credit history and credit score, especially when you are seeking financing when you are in need. Creditors also look for collateral before lending you money. If you are putting up collateral, you need to understand what a UCC filing is on a credit report.
UCC Filing Explained
Uniform Commercial Code (UCC) filing is a collection of laws to make business process more efficient in all states and territories in the United States. UCC lien filings allow lenders to claim collateral that a debtor pledges when securing financing. There are benefits and drawbacks to filing with money and credit, so you need to understand what the UCC.
What is a UCC Filing on a Credit Report?
The UCC-1 is the filing on a credit report that affects entrepreneurs. It shows what secured loan agreements you have with a creditor having interest in the property. Business credit bureaus like Experian, will show the most recent original or terminated filings up to the last 10 years on the credit report. When creditors pull your business report, they can see what assets have UCC-1 filings connected. If the collateral you are pledging have a primary on it, the lender might not want to be on your list as second.
How UCC Filing Works
Lenders can file a UCC-1 on the office of the Secretary of State. If a company has locations across a few states, the lender may file in each state. They can also review a company’s most recent history of UCC filings before they make a credit decision.
A UCC filing can have positive and negative effects, it depends on how you are filing. It can impact your cash flow and receivables regardless how you file. It can affect your working capital and ability to get additional business funds if you have a UCC filing on your credit report.
If there is a UCC filing on a credit report, they might not see this as something positive. Especially when they want to get more funding to expand business ventures. Lenders may be hesitant to take the risk on someone who has too many stakes on their assets which can leave you without working capital.
How to Remove a UCC Filing from Your Credit Report
If you need to remove a UCC filing form your credit report, ask the lender to file for its removal. In order to do this, they need to file a UCC-3 Financing Statement Amendment.
You can also just wait it out. Depending on how long you have been with the lender, the filing may be removed within a few months. Make sure to review your report periodically and make sure that it is correct on the credit business bureaus. If the information is incorrect, reach out the bureau so that they remove the data.
Another option is to swear an oath of full payment at your Secretary of State office. It will not remove the UCC-1 from your credit report, but it does show to any potential creditors that you have made the loan payments.
The Bottom Line
If you are concerned about having a UCC-1 filing on your credit report, you have other options. Unsecured business credit gets your financing without collateral, making this option attractive to most business owners. You also will not have to worry about removing a UCC filing down the road. Seek help from a credit expert before you make any decisions, and they can help you decide the best financing options that will help you meet your goals.