What is a UCC filing?

By: Douglas Wade, Attorney

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UCC means Uniform Commercial Code. The purpose of a UCC filing means a creditor has filed a document that puts the world on notice that there is a lien on a company’s asset. The UCC established regular, uniform regulations that are meant to be utilized by all U.S. states. The UCC is meant to enforce the creation of uniform laws. While it is true that the usage of these uniform codes is not mandatory, a majority of jurisdictions have chosen to utilize them, at least in part, to comply with the commonly accepted actions throughout the U.S. Specifically, the UCC is meant to streamline the set of rules and regulations that are applied to commerce, as well as commercial contracts.

It is true that the UCC is responsible for creating numerous provisions. However, the UCC also establishes rules for your UCC filings. If you are wondering how exactly these important filings are defined, or perhaps if they are removable, then let’s keep moving!

UCC Filings, Defined

If you are wondering what exactly defines these filings, you are not alone. Let’s clear up any questions you have about these important documents. First, what are UCC filings? They are simply forms that are submitted to businesses by creditors. If a creditor has an interest in a company’s business assets, they must provide public notice regarding this interest. This occurs when the business acquires a secure loan. Next, the creditors will file the statement of financing (UCC-1), and this will display the security interest, which will be within the collateral.

A Hypothetical Example

Let’s say one specific small business secures a loan by using its land or its building. Next, the creditor would be able to file a financing statement (UCC-1) in order to display its effective security interest on the building or the land. This creditor is therefore formally establishing that they will be compensated if a debtor defaults, or in some cases, if a debtor becomes bankrupt.

UCC-1 Form

All U.S. lenders use the UCC-1 Form. This displays to the public that they possess interests in certain business assets. These forms need to be filed with the correct state offices, according to where the debtor conducts business. There is a standard form that is utilized by all different lenders in the U.S., and this helps to show the public—and provide public notice—pertaining to the lenders’ interests in the respective business assets. While these forms need to be filed within the correct state (the state in which business is conducted by the debtor), some businesses have multiple locations. In this case, the Form (UCC-1) is able to be filed within more than one state.

Public Information

These universal filings are considered public information; therefore, all details are readily available publicly. Searches for specific UCCs can be made by specific parties who are interested and who want to learn more about the business’ obligations or financial debts. Before a creditor completes a secure loan, they typically search ICC filings. Why do they do this? It makes sense to perform this search in order to check to see if there are additional lenders who also filed this UCC-1 Form in order to improve security interests using similar collateral.

Removing Universal Commercial Code Filings

When a loan is taken care of and paid off, the borrower is tasked with asking their lender to eliminate the existing UCC filing from the loan itself. It makes sense to ensure that the request to remove the Uniform Commercial Code is completed on time. This will prevent information from being made continually available to the public that suggests that you still owe money or that the lender still has a claim to the property. UCC filings should be easy to remove, but if you have trouble, it could impact your business credit report. Our business lawyers & corporate attorneys at Nakase Wade are adept at helping you understand the ins and outs of UCC filings and how these filings can impact a small or large business. If you are a creditor, information regarding how to utilize UCC filings is also helpful, and we can help you with this too.

UCC Filings and Credit Scores

If you regularly review the reports pertaining to your company’s credit, you might notice a reference to your Universal Commercial Code filings. These UCC filings are often misunderstood by many people in sales and can create confusion. However, do not ignore these references because a failure to comprehend them can create problems in the future. Especially if you are interested in securing eventual approval for better forms of credit for your business, it is crucial to understand these references. This is for the good of your business—and to the benefit of your company’s business credit.

UCC Filings: Focusing In

UCC filing or Commercial Code Filings are simply lawful notices that are filed by lenders with their respective states. Lenders file these notices when they possess security interests against an asset. Therefore, a notice like this provides notification that lenders have a lien (also known as interest) on the asset that is being used to secure financing.

The phrase “UCC filing” is derived from the commercial codes that were produced to oversee the sales and leasing of goods. When the United States began to grow economically, business and business transactions needed to be regulated in a routine way. The U.S. created the UCC in order to normalize the business transaction process across various states and also create a sense of harmony and cohesion.

The code can be divided into 11 different articles, and each contains specific instructions regarding commercial transactions. These are useful to lenders and business people across the country.

11 Articles

Article 1 consists of General Provisions
Article 2 consists of Sales of Goods, while Article 2A consists of information regarding Leasing (Leasing Goods)
Negotiable articles such as commercial paper or promissory notes are covered by Article 3
Article 4 consists of Bank Deposits / Collections (collections, banking)
Article 4A consists of Transfers of Funds
Article 5 consists of credit letters
Article 6 consists of Asset Liquidation: Bulk Transfers and Bulk Sales
Article 7 consists of Bailment, pertaining to Goods or Title Documents
Article 8 consists of Securities tied to Investments
Article 9 consists of Secure Transactions (creditors’ lawful interests as in secure transactions)

UCC-1: Zeroing in

UCC-1 is a code that protects the lender’s interests in case there is a default by the borrower or even bankruptcy. When this occurs, the assets would potentially be foreclosed upon or sold. In some cases, they may be seized. This code stays active for five years, meaning that lenders must renew filings in order to maintain safe interests. This applies to loans that have terms that extend over five years. At times, amendments may be filed to UCC-1 in order to update asset listings. This is also where the report of your company’s business credit comes in handy, as it can indicate whether the lender you have worked with has placed a UCC filing in the report and if the UCC filing is still there.

UCC Filings: Impact on Business Financing

Unfortunately, UCC-1 actions can delay or completely halt your ability to obtain better forms of legitimate business financing. If UCC Filings are found on your business’ credit report, this can give lenders the idea that the business simply is not financially sound or viable. Even the presence of a previously paid debt will not stop a UCC from staying on the credit report of your business for years. This is due to the fact that sometimes, lenders will not automatically eliminate the lien, even after the debt is paid off in full. Essentially, your business could be zeroing in on a valuable financing opportunity yet still receive a denial or a delay at the last minute due to these liens still being active.

Negative Impact

Obviously, this can be incredibly disheartening, and UCCs on your credit report also can impact your business in other ways:

Through adversely impacting your general credit and credit risks
Through impacting scoring and additional risk analysis among all three credit bureaus
Through terminating your chances to receive financing for the business

Lenders with older UCC filing positions are considered to possess the top priority among the claims on the assets. Remember, the older, the better—the oldest UCC-1 position has the advantage. The Majority of top-profile lenders desire to be in the first position, so if they are not, many will simply not file. At times, it takes 1-6 weeks for the elimination of older liens to be finalized, and this lag time can deny your chance to close the deal or financing arrangement you nearly have in place.

We recommend you practice due diligence, research your opportunities, and be prudent with your financial agreements. Ensure that your business does not have any UCC-1s that remain active, especially for those debt obligations you have paid off. How can you do this? It is easy to check your profile as it pertains to the report of your company’s existing business credit online. If you have questions about how to do this, our Business Lawyers & Corporate Attorneys at Nakase Wade can easily guide you in this, and through other hurdles and issues, just let us know.

Tip: when the secured debt is ultimately paid off, immediately request that your lender goes ahead terminates the lien. This can be done by filing the UCC-3, and it will help prevent future headaches for your business.

Find a Competent Lender

You will find that lenders compete for borrowers daily. This can be used as an advantage since, based on the competition, you should ideally be able to find a competent lender whose terms you can accept. Lenders, though, also might use UCC filings for marketing purposes. Since these fillings are considered public records, prospective lenders are able to use them to locate customers who are accustomed to their products or resumes. They will then pitch these prospective customers with offers on financing.

Why are we mentioning this? It is essential for you to be careful and vet all of your business’ prospective lenders with care. You should also fully understand the UCC filing process.

The Value of Excellent Business Credit

We all want to expand our businesses, but many of us also want to expand our credit profiles. How do we do this? By remembering the “image” that is presented of your business to these all-important lenders. If lenders see UCC filings in the company’s business credit report, they may no longer be interested. Perhaps your upcoming loan or financial agreement is make-or-break for your company, or you are relying on it for growth or even paying your employees, and it is denied. This could be distressing and imply a tragic turn for a small or young business—this is why it is important to be informed.

Stay Informed

So, what is the answer to avoiding this stress? Be knowledgeable and aware of UCC filings. Understand what they are, what they mean, and how they can impact your business both positively and negatively. Show care to the lenders you choose, and always check the credit report that is so important to your business.

Contact a Licensed Business Lawyer

If you do find UCC-1 filings on that report, do not despair; just take the proper steps to remove it and carry on conducting your business in a rational, intelligent way. From small businesses to large, at Nakase Wade, our corporate attorneys and business lawyers are with you every step of the way.

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