It is common practice for business owners to take out a business loan to start a new company or help fund the operations of an existing business. This means being responsible for paying back the money borrowed to your chosen lender. Failure to make payments can lead to lenders seizing your assets in order to recover the loss.
A UCC filing from a lender ensures the lender has a legal right to your assets. By filing this document, the lender is protecting itself in the case of you failing to repay the loan.
What is a UCC filing?
This is a document establishing a lender’s legal right to your assets for the purposes of securing a loan. The UCC filing enables the lender to seize your assets if you end up defaulting on your payments. The lender may choose to have the UCC filing cover a particular asset or the filing can cover all of your assets via a blanket lien. It is common for lenders to submit a UCC filing when providing a small business loan.
What does a UCC filing actually do?
By filing a UCC financing statement, otherwise known as the UCC-1 financing statement, the lender is reserving a first-position right to the collateral you put up to receive the loan. This alerts other creditors of the lender’s interest in your assets specified in the filing. UCC filings are public record once filed and can be found online by anyone searching through active filings.
The lien formed via the UCC filing can be on a variety of personal and business assets. These may include assets such as inventory, business equipment, machinery, receivables, vehicles or real estate.
UCC filings typically last for five years, but this can differ with each state. However, your lender can file for a continuation if your loan is still active when the initial filing ends. Your lender also has the right to amend the financing statement if needed.
How do UCC filings affect businesses?
Having a lender submit a UCC filing can impact your business in a variety of ways which you should know about. UCC filings from the last five years will show up on your credit report, but will not impact your credit score unless you make late payments or default on the loan. On the other hand, having a UCC filing on your credit report may make another lender hesitant to loan you money when looking to secure additional funding. Also, failure to make payments can result in your business assets being seized.
Removing a UCC filing
You should know that upon repaying your loan, the UCC filing is not automatically removed from your credit report. The filing will remain until it expires. In order to remove the filing, you will have to request the lender file a UCC-3 form which will remove the lien on your assets.
Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on legal issues, these matters should be discussed with the appropriate professional.