UCC Financing Statement
In the past several posts we talked about deciphering your Equifax Small Business Report, Experian Business Report and Dun & Bradstreet Report. We broke down the various groups of data that make up your company’s credit report with public filings being one of them.
Public filings include records such as bankruptcies, liens, lawsuits, judgments and UCC statements. All of these types of public record information are gathered by the business credit reporting agencies from multiple sources across the entire country including federal bankruptcy courts.
In today’s post let’s review one particular public record known as the Uniform Commercial Code (UCC) statement also known as the UCC Financing Statement.
The UCC Financing Statement which, also known as a UCC-1 Form, is a legal document a creditor files with the state where the debtor/borrower is located to secure their interest in collateral from the borrower until payment is received in full. It also provides legal title to the asset listed if a debtor is unable to meet its financial obligation.
When it comes to businesses, creditors base the location for a UCC filing on the company’s state of incorporation or state of creation for a limited liability company.
For example, a bank gives a business a loan to a company so it can buy a delivery truck. The bank files a UCC financing statement (a lien) with the Secretary of State which lists the business owner as the debtor and the delivery truck as collateral. Before the business owner can sell the truck, the UCC filing will show the prospective purchaser that the original bank has the first right to recover its loan from the sale.
Or, before the business owner could borrow more money using that same equipment as collateral, the filing will show the new lender that at least part of the value of the vehicle belongs to another lender. When the business owner pays off the loan, the lender files a release and the property is free and clear.
So if you ever obtain or have obtained funding from a lender and pledged collateral to secure funding then most likely the lender filed a UCC Financing Statement with the state against your company’s collateral.
It’s crucial to be aware if you have an existing UCC filing against your business especially if you decide to pledge the same collateral for additional funding. The reason is lenders will conduct a UCC search when an applicant pledges collateral in order to check if others have filed a claim against the same collateral.
So how do you search the UCC filing records to see if you have an existing UCC filing? Most states handle UCC filings through their Secretary of State office. Usually you’ll have the ability to search your state’s online database containing UCC filings by using your business name, individual name or by the UCC filing number.
Keep in mind some states may allow you to conduct these searches absolutely free while other states may charge a nominal fee for the search and if you want to view the actual UCC documents.
So anytime you supply collateral to secure a loan a lender will most likely file a UCC Financing Statement with the state to announce claim to that collateral. This ultimately provides the primary lender greater claim to the collateral if the debtor happens to take a second loan from a different lender using the same collateral.
Until next time.
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About the author
Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. He is a business credit blogger for Dun and Bradstreet Credibility Corp, the SBA.gov Community, About.com and All Business.com. His articles and blog; Business Credit Blogger.com, have been featured in ‘Fox Small Business’,’American Express Small Business’, ‘Business Week’, ‘The Washington Post’, ‘The New York Times’, ‘The San Francisco Tribune’,‘Alltop’, and ‘Entrepreneur Connect’.