What a UCC Filing Means for Your Business Loan
When you take out a business loan, the lender is likely to require a UCC filing to lay claim to your business assets. A Uniform Commercial Code (UCC) filing is a public statement illustrating which assets secure your financing. And if you default on your loan payments, the lender has the right to seize those assets based on the filing. Though these filings are a common feature of business financing, it’s important to understand the full scope of what the process looks like before taking out a loan.
What is a UCC filing?
A UCC filing is a legal statement that indicates a creditor’s interest in your assets and prevents you from using the same assets for multiple forms of financing. The filing includes a list of the assets you’ll use to back the business loan.
The creditor would file the UCC with the secretary of state office in the state where the creditor is incorporated. UCC filings are open to the public, so other creditors would be able to see them.
The terms “UCC filing” and “UCC lien” are synonymous, as UCC filings can act as blanket liens covering the entirety of your business assets. UCC liens can also apply to specific business assets, such as equipment or commercial property.
Types of UCC filings
There are two types of UCC filings that may affect you as a borrower: UCC-1 and UCC-3. A UCC-1 filing is typically filed when you first take out your loan, while a UCC-3 filing is often used to amend the original UCC-1 filing.
Let’s break it down further:
- UCC-1: Also referred to as a “UCC-1 financing statement,” a UCC-1 forms the lien against a borrower’s single asset or multiple assets. The lender holds the rights to the property until you fully repay the debt.
- UCC-3: Form UCC-3 is a multiuse form lenders use to make amendments to a UCC-1. There are four things you and your lender can do with this form: amendment, assignment, continuation and termination.
- UCC-3 Amendment: Makes changes or corrections to Form UCC-1.
- UCC-3 Assignment: Used when a secured party has to assign or transfer its rights to the collateral.
- UCC-3 Continuation: Continues a UCC agreement for another five years. UCC filings expire after five years and need to be renewed for long-term business loans at least six months before the initial filing matures.
- UCC-3 Termination: Terminates the agreement and can be completed once the loan has been repaid in full. It publicly shows that the creditor no longer has claim to the collateral.
- UCC-5 Information Statement: Notes that the original filing was inaccurate, wrongly filed or that someone who wasn’t allowed to file the UCC filed it.
In a typical business financing arrangement, the lender would file the initial UCC-1 with your agreement during loan origination. From there, anyone who has rights to the pledged assets could file a UCC-3 to make changes, though most states only accept one UCC-3 filing at a time.
How a UCC filing affects your business financing
Lenders primarily use UCC filings to publicly claim the rights to your business assets until you pay off your debt. But a UCC filing could have additional effects on your business.
Impact to your business credit score
Your business credit report will show any UCC liens filed in the past five years. Up to 10 of the most recent filings could appear on your business credit report. A UCC filing could increase your credit utilization ratio, which may cause your business credit score to drop. However, you may only see a negative impact to your score if you’ve defaulted on a loan.
Blocks other business financing
A UCC filing could impact your ability to secure additional funding from other lenders. If a lender filed a blanket UCC lien on all of your business assets, those assets would be off-limits to other lenders. In some cases, you may not be able to get another business loan until your original lender cancels the UCC filing. The lender should terminate the filing within a month of receiving your final payment.
Risk of asset loss
Once you default on your loan payments, the UCC filing would allow the lender to seize the collateral backing the loan. Make sure you understand which assets you risk losing before taking out the loan.
How to remove a UCC filing
The main way to remove a UCC filing is to pay off your business loan. The statement may remain in your state’s searchable database for up to one year after payoff but should reflect that you repaid the loan. However, sometimes lenders don’t lift UCC liens right away. You may need to take an additional step to remove the UCC filing:
- Request a UCC-3 Termination filing: You may need to request that your lender submits a UCC-3 termination filing; doing so when you make your final loan payment is a good rule of thumb. Lenders may not always actively terminate the original UCC filing since the filing automatically ends after five years.
In some cases, you may be able to file a termination statement yourself if you suspect the lender hasn’t done so. A lender typically has 20 days to terminate a UCC filing after you make your request. If the lender fails to do so, you could file the termination statement on your own.
Check with your state’s secretary of state to look up any UCC filings associated with your assets. If a lien shows up, either ask your lender to submit a UCC-3 filing, or submit a termination statement yourself if the 20-day period has passed.
What is a UCC filing?
A UCC filing is a legal statement that a lender would file when you take out a business loan that requires you to put up some or all of your business assets as collateral. A UCC filing gives the lender the right to claim those assets if you default on your payments. Once you repay your debt, the lender would lift the lien.
How do I find a UCC filing?
You can look up UCC filings online through the secretary of state website in the state where your lender is based. UCC filings are public record.
How do I get rid of a UCC filing?
You can remove a UCC filing when you’ve repaid your business loan in full. Once you repay the debt, the lender should remove the lien from your business assets. If not, you may request that the lender files a UCC-3 to terminate the lien.