Small business financing often needs a UCC lien in your business assets. If you have taken out a small company loan previously 5 years, there’s a good chance your business includes a UCC filing, and therefore a creditor has placed a UCC lien on the assets you use as collateral to secure the loan. However, many businesses on the point of accepting financing offer wonder the way a UCC filing will affect their business. You might also be wondering, “Is really a UCC filing bad?” Or “Hey, what is a UCC filing, anyway?”
Though UCC liens are extremely common, it’s important that you understand what you’re engaging in if you’re considering financing that comes with a UCC lien. Should you don’t read the small print, you might not even realize you have a lien against your business until you see a UCC filing on your credit report. This can be alarming, as you would expect, and especially therefore if you’ve already repaid the loan under consideration. For these reasons, it’s necessary that you know what you’re engaging in having a UCC filing and you are aware of any UCC filings on your business.
This article discusses the way it operates of UCC filings, including how UCC filings can negatively impact your company, how you can check your UCC filing status, and how to remove a UCC filing.
What Are UCC Filings?
A UCC filing is really a public record signifying that there is an active UCC lien in your business assets. When you take out a small business loan that utilizes a UCC lien as collateral, your company lender will create a UCC filing with the secretary of state where you reside. The UCC filing implies that until the loan is repaid and the UCC lien is taken away, the lender includes a security curiosity about your assets and can lay claim that they can those assets should you default.
The letters “UCC” refer to the Uniform Commercial Code, a set of legal standards which govern business transactions in the usa. A UCC filing can also be sometimes known as UCC-1 Financing Statement, or UCC-1 filing.
Are UCC Filings Bad?
UCC filings aren't necessarily bad. Most business financing is secured with collateral, along with a UCC filing is a standard part of the process to obtain a collateral-secured loan. The UCC filing just a legal notice proclaiming that a lender is applying a lien to secure your business loan.
However, UCC filings are public record information that other parties—including other lenders—can view, and they will show up on your credit history. Having a UCC filing on your credit history can potentially allow it to be tougher for your business to obtain additional financing prior to the lien is taken away or expires. In the event you default in your loan, the lender may also enforce the UCC lien to get your collateral.
Types Of UCC Liens
A UCC lien may cover specific collateral, such as invoices, inventory, or business vehicles. Another type of UCC lien is really a UCC blanket lien, which provides coverage for all of your business assets.
Blanket Liens
Many small company loans need a UCC-1 blanket lien. A blanket lien is really a general lien covering all your business assets. This lien gives the lender a lot of power, as it allows them to seize all of the business assets should you default in your loan. Because of this, many SMB lenders prefer using UCC blanket liens.
An example of a type of business loan requiring a UCC blanket lien is definitely an SBA loan. UCC blanket liens are also commonly necessary for short-term loans.
Specific Collateral Liens
Specific collateral UCC-1 statements are liens against certain specific business assets. This type of lien can be used in real estate loans or business auto loans wherein the real estate or vehicle being purchased is used to secure the loan. Specific collateral liens will also be used in specialized forms of business financing for example invoice financing, inventory financing, and equipment financing.
For example, if you finance a business vehicle having a loan that has a specific collateral lien, you are pledging your automobile as collateral. Which means that should you don’t repay your loan, the lender can seize the automobile but can’t touch your other business assets.
How UCC Liens Affect Your Business
A UCC lien can impact your business in several ways during different points during the lifetime of the lien. In the best-case scenario in which you repay the loan and don’t need another business loan before you’ve repaid the first one, a lien does not really affect your business at all. However, in the worst-case scenario in which you have a lien with an outstanding loan that you simply haven’t repaid, your credit will be damaged and also the lienholder can even seize your assets.
When A UCC Lien Is Filed
Once the UCC-1 filing occurs, the lien will start appearing in public places record searches and on your credit history. This lien filing notifies other potential creditors that you simply owe money and gives the identity of the creditor or creditors who have a security claim on your assets. The UCC filing also states the status of the loan. While a UCC filing will affect your credit utilization ratio, the presence of a UCC lien should not seriously harm your credit unless you stop paying around the loan and it goes into default.
When A UCC Lien Is Enforced
If you don’t repay the loan within the agreed term, your creditor has the right to enforce the UCC lien it has upon your business and seize your business assets. To be able to enforce the lien, they will need to take you to court and win a judgment against you. This will also damage your credit rating. In some instances, the lending company could decide it’s not well worth the effort and never feel the steps to enforce the lien. But again, your credit rating it's still impacted if you have a UCC lien on an unpaid loan.
When Are applying For Other Financing With A UCC Lien
A UCC lien makes it hard to obtain additional financing while the lien continues to be active, even when your loan is within good standing. It is because most financiers do not want to take second position on your collateral. For those who have separate collateral you can use to secure another loan, it isn't really an issue. However, many types of small business loans use a UCC blanket lien, which provides coverage for all your assets.
When A UCC Lien Expires
After a UCC lien expires, it'll no more affect your company or impact your ability to obtain financing. A UCC lien includes a set term, that is usually five years. Following the term expires, the lien expires as well and can stop appearing in your business searches. However, if you still haven’t repaid your debt after the lien expires, the lender can file to renew the UCC lien.
How To see if You've got a UCC Filing On Your Business
Now you know more about what UCC filings are, you might want to check if your company has any filings. There are a few new ways to do that:
Search Your State’s Secretary of State Website
Most states have searchable directories of UCC filings where you can find out if you've got a UCC filing. Simply find your secretary of state’s website and locate the UCC filing directory. There, you are able to usually search UCC filings named the debtor or perhaps your financial statement number. If you discover a UCC filing associated with your business around the secretary of state’s website and want to request more details, you'll be able to order a complete report.
Search County Clerk’s Records
If you've got a specific collateral UCC lien secured with real estate, the UCC filing could be filed with your county clerk as opposed to the secretary of state. In this case, you’ll need to search property records from the county clerk’s website to find your UCC filing. Not every counties have comprehensive online services, to will need to go to the county clerk’s office personally to look or retrieve a copy of the UCC filing.
Use A Commercial UCC Search Site
If you can’t obtain the information you need from government websites, there are also commercial UCC search services you can pay to execute a comprehensive UCC filing search. This type of service may also be useful for those who have multiple liens in different jurisdictions.
Check Your company Credit Report
An active UCC lien should appear on your company credit report—but probably not your individual credit history. If you think you have a UCC filing, you can examine your company credit history to see the filing and also the status from the lien. You might not be able to begin to see the full details of the filing, however. Still, it’s a good idea to regularly monitor your business credit history with all of the major credit bureaus—Dun & Bradstreet, Experian, and Equifax—to check for UCC filings.
How To Terminate A UCC Filing
If you discover you have old liens placed against your business, you'll most likely want a UCC filing termination. You will find really only three things you need to complete to terminate a UCC filing:
- Pay off your debt, should you still owe it.
- Ask your lender to file for a UCC-3, which terminates a UCC lien.
- Request a UCC-3 from your secretary of state in case your lender won’t file one.
That’s basically it! What is important is actually to get that UCC-3 form filed, since this is the particular item required for a UCC filing termination. Unfortunately, many lenders don’t file a UCC-3 automatically after you repay a loan, so again, you may want to request one. If you don’t do anything whatsoever to terminate a UCC filing, it will eventually expire and disappear out of your credit reports—but in certain cases not for 10+ years—so long as the debtor doesn't renew the lien. If your terminated UCC filing continues to be appearing on all of your business credit history, you are able to dispute the inaccuracy with the credit bureau to have it removed.
Finally, if you need a small business loan and want to avoid a UCC filing altogether, you'll want to consider a business loan without any UCC lien. You should check out your very best unsecured loan options here: Top 15 Best Unsecured Business Loans
