What is a UCC Filing?

A Uniform Commercial Code (UCC) is a financing statement that is filed by the creditor in order to claim interest in the debtor’s collateral and a UCC-1 is the most common form used. You may have noticed something called a UCC filing statement, also referred to as a UCC lien or a UCC-1 filing, on your business credit report if you have ever taken out a business loan. A UCC filing is important to understand because it can make the difference between being approved or not for your business to receive funds. This article will help you understand what a UCC filing is.

A UCC filing is a legal form that a creditor files in order to secure the person’s interest in the personal property/assets or a debtor. The creditor has the right to take possession of certain assets as repayment of underlying debt. Creditors can see what assets have a UCC filing connected when a creditor pulls your business report.

Most of the benefits of filing UCCs are benefits for lenders as it protects them in case the borrower defaults or goes bankrupt. UCCs are active for five years which means the lender will need to renew the filing to keep interests protected for loan terms that are longer than five years.

It is important to keep in mind that the UCC filings are public records. If for some reason it does not show up on your business credit report, it could still come up if you apply for business financing. UCCs can stay on your report for years even if you have paid any past debt obligations in full.

Types of UCCs

There are a couple of kinds of UCCs that can be filed on a company, which depends on how many loans the debtor already has with other creditors. The following are the two types of UCC liens.

• Specific collateral – this puts a lien on one or more specific assets you own. It is common for equipment and inventory loans, where the collateral is usually being what the business owner used the funding for. For example, if you want to purchase a new forklift then the forklift itself is the collateral.
• Blanket – this lien is where the lender claims most or sometimes even all the business’s total assets. Blanket liens are common with traditional bank loans, SBA loans, and short-term loans. The types of assets included in a blanket lien are real estate, office equipment, vehicles, inventory, and accounts receivable and payable.

How a UCC filing can affect you

UCC filings can affect your ability to get financing by either delaying the funds or by just flat out denying it. A UCC filing tells lenders that your business is not financially stable and that you owe money to another lender and that your assets are someone else’s.

It is important to find out if your business has any UCC lien issues. You can check your business credit report yourself or go to the website of your state’s Secretary of State office to find active liens.

How to remove a UCC filing

Fortunately, there are a few ways to remove a UCC filing if you find that your business does in fact have one. It is important to try to remove the UCC filing before you fill out any business loan applications.

• Ask the lender to terminate the lien once paid off – once you are done with all your payments for your loan, immediately request to file a UCC-3 form. The UCC-3 form will remove the UCC-1 filing and terminate the lien.
• Visit your secretary of state’s office – another option is to request a UCC filing removal yourself by making a trip down to your secretary of state’s office. You will be able to swear under oath that you have paid your debt obligations in full and are requesting to remove the UCC-1 filing. This step would be good to take if the lender does not file a UCC-3 form after your finish your debt payments.
• Dispute inaccurate information on your business credit report – you can make a dispute ask credit report agencies to remove the UCC filing from your reports.

Either of these will take a while to get the removal you request on your business credit reports and state public records. If you are considering getting financing for your business, it is important to do this ahead of time to ensure you will get approved for funding and do not come across any delays.

Conclusion

Before you begin the process of applying for business financing, make sure that your business has no UCC filings active for debt obligations that have been paid. If the payments have been made in full, the lender than can file a UCC-3 form in order to terminate the lien on the assets. Remember, your ability to get approved for financing depends on how your business looks to the lenders, including whether or not you have a UCC filing on your business report.