What Is A UCC Filing?
Ucc Filing: UCC filings or liens are legal forms that a creditor files to give notice that it has an interest in the personal or business property of a debtor. Essentially, UCC lien filings allow a lender to formally lay claim to collateral that a debtor pledges to secure their financing. The term is a part of a collection of rules established to regulate how commercial transactions work under the Uniform Commercial Code (UCC).
If you’re a small business owner interested in expanding your business credit profile, it’s difficult to know what next steps you can take beyond the basics. Beyond responsibly taking on and repaying business credit, what can a business owner do to improve their business’s credit history?
There are so many potential tactics for improving your business credit, but an often-overlooked one is digging into your business’s UCC filings. You might have seen a reference to a UCC-1 filing—also referred to as a UCC filing or a UCC lien—on your business’s credit report.
We’re here to lay out all you need to know about UCC filings—from a boiled-down answer to what is a UCC filing, to all the nitty-gritty details behind an in-depth UCC filing definition. We’ll also explain how a UCC filing might affect your business—particularly when it comes to securing high-quality small business financing.
What Is A UCC Filing?
The answer to “What is a UCC lien filing?” will rely on understanding what UCC stands for. The UCC in UCC filings stands for Uniform Commercial Code, but that doesn’t necessarily tell you much on its own.
Let’s back up for a second: States have the right to enact unique laws to govern their specific areas that preempt uniform federal law. However, a variety of legal issues regularly transcend state lines—like sales and acquisitions—which necessitates a predictable and relatively uniform set of laws across states.
The UCC is known as one of these “Uniform Acts”—collaboratively written laws meant to help enact identical or similar laws by the separate states. First published in 1952, the UCC is one of a number of acts that have been put into law with the goal of harmonizing the law of sales and other commercial transactions across the United States.
Essentially, the UCC is really just a huge list of laws. But the aspect of the UCC we’ll be discussing—and what your business really needs to know about—is Article 1: General Provisions, which dictates UCC-1 Filings, more commonly referred to as UCC filings.
UCC Filing Search
A Uniform Commercial Code (UCC) lien filing, or UCC filing, is a notice lenders file to stake a claim in borrower assets in the event of default. UCC liens can cover all or specific assets and can be filed against businesses or individuals. The term comes from rules governing commercial transactions in the United States.
Strong borrowers may be able to qualify for business financing even if they have a UCC lien filed against them. For example, OnDeck, who sponsored this article and offers short-term business loans and lines of credit, will take the second position in some cases. Prequalifying online with OnDeck only takes a few minutes.
When your business enters into a financing agreement that is secured by collateral, like equipment, a UCC lien could be filed against any assets you pledged to secure the loan. A UCC lien does not generally hurt your business’s day-to-day operations but could prevent you from getting additional funding before satisfying the lien.
While other types of liens typically get filed because of something bad happening, such as not paying your taxes, a UCC lien is a normal part of small business financing. The lien serves as notice to all potential creditors that you owe a lender money and that your assets are pledged to that lender until you repay the debt.
If you’d like to see if your business has a UCC lien, you can use a free business credit check and summary report from Nav.
A UCC-1 financing statement (an abbreviation for Uniform Commercial Code-1) is a legal form that a creditor files to give notice that it has or may have an interest in the personal property of a debtor (a person who owes a debt to the creditor as typically specified in the agreement creating the debt). This form is filed in order to “perfect” a creditor’s security interest by giving public notice that there is a right to take possession of and sell certain assets for repayment of a specific debt with a certain priority. Such notices of sale are often found in the local newspapers. Once the form has been filed, the creditor establishes a relative priority with other creditors of the debtor. This process is also called “perfecting the security interest” in the property, and this type of loan is a secured loan. A financing statement may also be filed in the real estate records by a lessor of fixtures to establish the priority of the lessor’s rights against a holder of a mortgage or other lien on the real property. The creditor’s rights against the debtor and the lessor’s rights against the lessee are based on the credit documents and the lease, respectively, and not the financing statement.
Pursuant to the standards set forth in the UCC, at 9-503 and 9-504, the financing statement need only contain three pieces of information:
- the debtor’s name and address
- the creditor’s name and address
- an indication of the collateral, “whether or not it is specific if it reasonably identifies what is described.” (UCC 9-108)
The financing statement is generally filed with the office of the state secretary of state, in the state where the debtor is located – for an individual, the state where the debtor resides, for most kinds of business organizations the state of incorporation or organization. Many states have a state agency that operates under the secretary of state, which is tasked with overseeing business organizations and activities, including receipt of financing statements. However, an exception exists if the collateral is something that is tied to a particular piece of real property, such as timber, mineral rights, or fixtures. In that case, the filing must be made in the county where the property is located, usually in the recording office or county court, because that is where third parties are most likely to search for such record.
In the case of a loan secured by personal property collateral, the filing of a financing statement gives notice of a lien against the property so that other lenders or buyers of the personal property will know of the security interest. In the case of a filing of a financing statement by a lessor of fixtures, the filing of the financing statement gives notice of the lessor’s interests to others who acquire an interest in the real property and related fixtures. The financing statement does not create a lien nor does it create any additional rights against a lessee in favor of a lessor, the filing of a financing statement just gives notice of whatever rights the creditor or lessor has under their loan documents or lease, respectively.
UCC Filing California
The Uniform Commercial Code (UCC) was created to govern the sale and leases of goods. As the U.S. economy grew, so did the need to regulate business transactions in a uniform way. The UCC was created to standardize the process of business transactions in multiple states by creating more harmony and uniformity.
The code in general is divided up into 11 articles, each containing language over various forms of commercial transactions:
Article 1: General Provisions (contains generic interpretation language)
Article 2: Sales (refers to the sale of goods)
Article 2A: Leases (refers to the leasing of goods)
Article 3: Negotiable Instruments (refers to commercial paper and promissory notes)
Article 4: Bank Deposits and Collections (refers to banking and collections)
Article 4A: Funds Transfers (refers to bank transfers)
Article 5: Letters of Credit (refers to letters of credit)
Article 6: Bulk Transfers/Bulk Sales (refers to asset liquidation)
Article 7: Documents of Title (refers to bailment of goods)
Article 8: Investment Securities (refers to securities and financial instruments)
Article 9: Secured Transactions (refers to the legal interests of creditors in secured transactions)
What Are The Benefits After Filing?
Funding has been tight for many small businesses because of the financial crisis. Access to credit nearly came to a complete halt for business owners who needed to survive the meltdown. A few years after the recovery began, there is still a level of risk aversion that can make it harder for your business.
Traditional financial institutions commonly reviewed collateral and cash flow statements when deciding whether to lend money. Alternative funding sources with more lenient requirements have become attractive to business owners. Even though these alternative lenders are more willing than banks to make business loans, they still want security in being repaid.
Therefore, they will use a UCC filing as a secured agreement for repayment. Accessing funds through these sources can offer many benefits to your business. Nevertheless, you must understand what the filing does for your business. If you decide to use accounts receivable as a secured asset, the UCC filing usually places a lien on the accounts.
While this type of lien is not reported to a credit reporting agency, it does serve as a safeguard for the lender. Other potential lenders will also know that your customer invoices are not available as collateral. Your business credit rating is affected, however, if the loan is not repaid according to the terms.
Keep in mind that UCC laws may vary from state to state. In some cases, the fine print on a credit application serves as your UCC filing notice of the creditor’s authority. Consulting with an attorney regarding UCC filings may help you make the best decision for your business.