An Overview: What Is a UCC Filing?
UCC filings are often known as liens. They are basically legal documents that creditors submit to notify the debtor that they have interest in their personal or corporate property.
The word refers to regulations created by the Uniform Commercial Code to govern how commercial transactions are conducted (UCC).
If you're a small business owner looking to improve your business credit profile then it might be tough to know what measures to take beyond the fundamentals.
But what can a business owner do to enhance their company's credit history beyond appropriately taking up and repaying business credit?
There are several potential strategies for enhancing your business credit. And the one that is sometimes missed is reviewing your company's UCC registrations.
What Is Uniform Commercial Code (UCC)?
States have the authority to adopt distinctive laws to regulate their respective territories. This takes precedence over uniform federal law.
Though several legal concerns such as sales and acquisitions frequently cross state boundaries. Necessitating a predictable and somewhat similar set of rules between states.
A UCC filing is one of several Uniform Acts. It is a collaboratively designed legislation to assist disparate states in implementing identical or comparable laws.
The Uniform Commercial Code (UCC) first published in 1952 is one of the numerous statutes that have been enacted to standardize the law of sales. Plus, other commercial transactions across the United States.
The UCC is essentially a long set of laws in a directory. But the part of the UCC we'll be talking about and what your firm has to know about is Article 1 – which governs UCC-1.
“A lien in essence indicates that a lender has the right to maintain ownership of another person's property until the debt is repaid.”
Definition of UCC Lien Filing
A UCC filing refers to the UCC-1 Financing Statement. It is a legal instrument that a creditor submits to notify the debtor that it has or may have an interest in the debtor's personal or company property.
The lender will get a lien on the small business's equipment and inventory. Which will act as security until the debt owed by that individual is erased.
A lien in essence indicates that a lender has the right to maintain ownership of another person's property until the debt is repaid.
The majority of the benefits associated with filing UCC-1 liens accrue to lenders. The lien safeguards the lender's interests in the event of borrower failure or bankruptcy. In which case those business assets would be foreclosed on, confiscated or sold to repay the lender.
How are UCC Filings Performed?
When you are approved for secured financing the lender or creditor files a UCC-1 Financing Statement. It is filed with the secretary of state in which your small business is located.
This filing generates a lien on specific assets utilized by the borrower to secure the loan (unless the lender files a blanket claim identifying all assets).
The finance declaration submitted to the Secretary of State must include three pieces of information:
- Name and address of the debtor
- Name and address of the creditor
According to the UCC financing statement papers, an indicator of the collateral "whether or not it is detailed if it fairly identifies what is mentioned".
Notices of UCC lien filings are public records and are frequently published in local newspapers providing notice of the lien.
What Can Lenders Place UCC Filings On?
The UCC file is valid for five years. This implies that a lender must renew the filing to preserve its rights for loan durations that are longer than five years.
Lenders can place UCC registrations on a variety of assets. Lenders will often file UCC liens on property, real estate or other company assets.
A judgment creditor can normally collect funds from your bank account. Or force the sale of most company assets if you fail to pay your obligation.
The following are generally excluded from creditors in most states:
- The equity you hold in a single automobile up to a particular amount typically $1,000 to $5,000
- A substantial amount of equity in your home typically between $10,000 and $50,000 depending on the state
It's a good idea to look up your state's bankruptcy exemptions because UCC filing laws differ from state to state. It helps you understand whether UCC filing requirements apply to your secured debt.
“Having a UCC filing will likewise not affect your credit score.”
How UCC Filings Affect Your Credit and Ability to Obtain Financing?
A UCC filing isn't always detrimental to your property. It permits you to get access to cheap financing. A UCC line is nearly always worthwhile.
Having a UCC filing will likewise not affect your personal credit score. However, the inclusion of a UCC filing will remain on your credit record and may impair your future eligibility for other types of small business financing.
Lenders may not always discharge lien promptly even when a loan is paid in full. If not handled appropriately UCC lien filings might cause delays. Or even prevent you from obtaining better ways of company finance.
This is why it's critical to keep an eye on your credit record. And If required eliminate UCC liens.
How Do I Get Rid of a UCC Filing?
Your lender may fail to remove the UCC lien that has been placed against your assets. Even if you return your payments on time and in full
Determining how to discover a UCC filing on your business property is simple. You'll need to verify your company's credit history and maintain track of UCC filing records using UCC filing searches.
If you discover any obsolete UCC filings still assigned to your company you should get them deleted.
Once your debt is paid in full it is up to the lender to file a UCC termination statement. When you pay off a secured loan obligation you should promptly request that the lender release the lien on the assets. They can do so by submitting a UCC-3 termination form.
You may request to get your record deleted from your secretary of state's office after filing the UCC termination form.
Finally, you may be able to dispute the inaccuracies with the credit reporting agencies directly. But bear in mind that you will need to do this with each reporting agency separately.
FAQs About UCC Filing
How long is a UCC valid?
A UCC filing is usually valid for five years. After that period has passed the lender must renew the filing to keep ownership of your assets.
Most lenders will let the lien expire on its own. But you must file a UCC-3 financing statement if you wish to eliminate a claim before it does.
What exactly is a UCC filing fee?
The charge payable when a party files Form UCC-1 is known as a UCC filing fee. The charge will differ depending on the state. For example, California filers must pay a $10 filing fee. Whereas New York filers must pay a $20 filing fee.
How can I locate UCC filings?
There are two straightforward approaches for locating UCC filings. The first way is to look at your company's credit history.
The second way is to look for your company's name in your state's secretary of state's internet database.
Because UCC filings are public records, it should be simple to locate information about the lender(s) and claims on your company's assets.
What is the significance of a UCC financing statement?
A UCC financing statement (Form UCC-1) notifies debtors that creditors have a security interest in their personal or company assets.
The Bottom Line
After reading our guide to understanding UCC filings you're probably wondering what's next. If you're thinking about taking on secured debt that would necessitate a UCC filing; so, proceed with caution.
A UCC filing is usually required to acquire the affordable small business financing. But be sure you completely grasp the conditions of your loan arrangement and how they may affect you in the future.
Once you've paid off your obligations make sure the lien is removed as soon as possible so that your company credit is up to date.
It's a good idea to maintain track of the status of UCC-1 filings. It is made against your company to ensure you have access to quality funding whenever you need it.
You may always verify the status of UCC filings against your company by consulting your business credit report or browsing public UCC lien records.