What Is a UCC Filing?
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Key takeaways
UCC filings are documents filed by lenders to indicate their right to seize assets that a borrower has pledged as collateral on a loan.
They may be filed on specific collateral or as blanket liens on all of a business’s assets.
UCC liens themselves do not impact your business credit score; however, they do appear on your business credit report for other lenders to see.
UCC liens can be removed once you have paid off your loan and your lender files a UCC-3 form to terminate the lien.
A Uniform Commercial Code filing, also known as a UCC filing or UCC-1 financing statement, is a document that lenders use to establish their legal right to assets that a borrower uses to secure a loan. This notice allows the lender to seize the borrower’s collateral in the case of default.
UCC filings can cover a specific piece of collateral, or lenders can file a blanket lien, which applies to all of a borrower’s assets. Filing a UCC lien is a common practice among lenders when they issue small-business loans.
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How does a UCC filing work?
A UCC filing is the official notice lenders use to indicate that they have a security interest in a borrower’s assets or property. The UCC filing establishes a lien against the collateral the borrower uses to secure the loan — giving the lender the first-position right to claim that collateral as repayment in the case of default.
UCC liens are typically filed using a UCC financing statement, also called the UCC-1 financing statement.
This document is submitted to the secretary of state’s office in the state where the business (i.e., the borrower) is located. The UCC-1 financing statement identifies the assets or properties the lender has claim to, and lets other creditors know of its security interest in that collateral.
UCC liens can be filed on a range of personal and/or business assets, including but not limited to real estate, inventory, receivables, vehicles, machinery and equipment.
Once a UCC lien is filed with the secretary of state’s office, it becomes public record, meaning anyone can go online and search for active filings.
Although the specifics can vary from state to state, UCC filings usually last for five years. If your loan is still active after that period of time, your lender can apply for a continuation of the lien. The lender can also file amendments or addendums to the statement, if necessary.
Did you know...
The Uniform Commercial Code is a set of laws that govern commercial transactions across the U.S. These uniformly adopted state laws help promote and simplify interstate business. Article 9 of the Uniform Commercial Code provides guidelines for transactions secured by assets or property, resulting in the term UCC filing.
How a UCC filing impacts your business
Simply having a UCC lien is not bad for your business — it serves as an official notice to other creditors that your lender has a security interest in one or all of your assets. However, if you end up defaulting on that business loan, or need additional funding, the UCC filing could have an impact in several ways.
Business credit
Although your business credit report will show any UCC filings taken out on your business within the last five years, these liens don’t typically impact your business credit score. If you make late payments or default on your loan, though, your credit can be negatively affected.
New lenders will also be able to see any UCC filings from the past five years — including loan balances and payment history — which may affect their approval decision. It’s a good idea to monitor your business credit and make sure you clean up any old liens or liens for loans that have been paid off.
Company assets
When a lender files a UCC lien, some or all of your assets (depending on the type of lien) are at risk if you fail to pay back your loan. As long as you repay your lender, your assets will remain safe. On the other hand, if you don’t repay your loan, the lender can seize your assets to recover its losses.
Additional financing
A UCC filing indicates that a lender has the first position to claim your collateral in the case of default. If you decide to apply for additional financing, your new lender can search to see if your business has any liens against it. In many cases, lenders are hesitant to take second position on a company’s assets and may deny your business loan application — or offer limited funding — if you have an active UCC filing.
Types of UCC filings
There are two types of UCC filings that can be used to secure a business loan. The UCC filing a lender uses can vary based on a variety of factors, including the type of business loan, your company’s qualifications and the individual lender itself.
1. UCC lien on specific collateral
Lenders can file a UCC lien on specific pieces of collateral, such as real estate or equipment. If you default on your business loan, the lender can claim these assets to recoup its losses, but not any other company assets.
Specific collateral liens tend to be used for special-purpose loans, such as equipment financing or inventory financing. If there are existing liens on specific assets, you may have trouble using those same assets as collateral on future loans.
2. Blanket lien
Rather than claiming a specific piece of collateral, a blanket lien covers all of a business’s assets, including things like accounts receivables, equipment, vehicles and inventory. If you default on your loan, the lender can claim (and/or sell) any of the assets it needs to cover its losses.
Blanket liens are more commonly used for standard bank loans, SBA loans and online loans.
How to remove a UCC filing
Your UCC lien can only be removed by the lienholder (lender), and is usually only done after you’ve repaid the loan. A UCC lien is typically active for five years — if your loan term extends beyond that, your lender may choose to renew the lien. If you repay your loan before the five years is up, any UCC filing on that financing can remain active until you have it removed.
You can remove a UCC filing by asking your lender to submit a UCC-3 form to terminate the lien. If you find a UCC lien listed on your credit report that shouldn’t be there, you can dispute it with the secretary of state’s office or credit bureau (e.g., Experian, Dun & Bradstreet) to have it removed. You will likely need to show proof that you’ve repaid the loan and swear an oath that you’re telling the truth.
Removing a UCC lien on a loan that you’ve repaid can help you qualify for other business funding options.
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