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.
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.
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.