What is a UCC Filing?
A UCC (Uniform Commercial Code) filing is a legal document that a creditor files to claim an interest in the debtor’s property. It is commonly used in business financing and involves collateral, such as company assets or bank accounts. The UCC-1 filing protects the lender’s interests for five years unless the lender refiles. These filings are public records and can significantly impact a company’s credit score and ability to secure additional financing.
Companies must regularly monitor their UCC filings to ensure accuracy and promptly resolve discrepancies. Accurately indicating all secured parties on UCC forms is essential to ensure correct termination processes. Inaccurate or outdated information on these filings can negatively affect credit scores and create obstacles when seeking new financing opportunities. By staying proactive and addressing any issues with UCC filings, businesses can maintain healthy credit profiles, which are essential for future financial endeavors.
Uniform Commercial Code
The Uniform Commercial Code (UCC) is a set of standardized laws and regulations that govern commercial transactions and business practices in the United States. It provides consistency and clarity in areas such as sales of goods, leases, negotiable instruments, and secured transactions. While not a federal law, most states have adopted it.
In business lending, the UCC establishes the rights and obligations of parties involved in secured transactions, such as lenders and borrowers. It provides a framework for creating and enforcing security interests in collateral, which helps to mitigate lenders’ risk and protect their interests in case of default. The first lender to file a UCC-1 has the first claim on the assets in case of default, affecting recovery for subsequent lenders.
Additionally, the UCC provides guidelines for the perfection of security interests, ensuring that lenders have priority over other creditors in the event of insolvency or bankruptcy. The UCC facilitates and regulates business lending transactions, providing certainty and predictability for all parties involved.
Why Remove a UCC Filing?
Removing a UCC filing is essential for businesses to maintain a clean credit report and avoid potential obstacles in obtaining future financing. A UCC filing can limit a business’s ability to secure new loans or credit, indicating that its assets are already committed to another lender. By removing a UCC filing, a business can improve its creditworthiness and increase its chances of loan approval.
Additionally, an outdated UCC filing can harm a business’s reputation and make selling assets or transferring ownership more difficult. Removing a UCC filing can also help businesses avoid potential disputes with lenders and ensure that their credit reports accurately reflect their current financial situation.
How does a UCC Filing work?
Lenders file UCC liens by preparing a UCC-1 financing statement, which includes the borrower’s name and address, the lender’s name and address, and a description of the collateral being used as security for the loan. This original UCC financing statement is then filed with the appropriate state agency, typically the Secretary of State’s office.
Once filed, the UCC financing statement creates a public record of the lender’s security interest in the borrower’s collateral. This process allows lenders to establish priority over other creditors and provides notice to potential future creditors that the collateral is already encumbered.
Pros & Cons of Securing Business Loans with a UCC Lien
Pros:
- Easier access to financing.
- Lower interest rates.
- Flexibility in the use of funds.
Cons:
- Risk of losing assets.
- Limited ability to obtain additional financing.
- Potential impact on credit.
Can a UCC Lien harm my business?
UCC filings are often necessary to secure business financing. However, it may pose some risks to your business. You should know the potential risks before signing a business loan agreement that includes a UCC filing.
Impact on Business: A UCC lien can significantly impact your business financing and credit opportunities. When creditors file a UCC lien, they use your business assets as collateral, meaning they could be seized if you fail to repay the debt. This could make it harder for your business to obtain new loans or lines of credit because potential lenders may see the existing UCC filing as a risk.
Credit Score and Financial Risk: UCC filings do not affect a business’s credit score but can limit future financing options. UCC filings are public records and will typically appear on a business’s credit reports regardless of whether they affect the credit score.
Risk of Losing Assets if You Default: A UCC lien puts a business’s assets at risk if it defaults on the loan. This is because the UCC filing gives the lender a legal claim on the business’s assets as collateral for the loan. If the company cannot make payments and defaults on the loan, the lender can seize and sell the assets to recoup their losses.
How do I remove a UCC Filing?
A UCC-1 filing can be removed once the underlying debt is fully repaid. After your final payment, the lender should file a UCC-3 termination statement with the appropriate state authority within 30 days to officially cancel the lien. If multiple secured parties are on the initial financing statement, all parties must agree to the termination. However, lenders don’t always file the UCC termination form automatically, so it’s essential to follow up and ensure the filing is removed.
If your lender doesn’t initiate the termination, you can submit a termination demand letter requesting that they file the UCC-3. For it to be an authenticated demand, this letter should include the necessary party information, such as mailing addresses, and be authenticated by the debtor. The lender has 20 days to file a termination statement or send a termination statement to the debtor after receiving a termination demand.
In cases where the lender fails to act, you can file the UCC-3 termination yourself with proof that the debt is satisfied. Once the termination is processed, check your business credit reports (e.g., with Dun & Bradstreet), as some bureaus retain closed liens until formally requested to remove them or after 11 years of inactivity. Always confirm that the UCC filing has been officially terminated and that all relevant parties and records reflect the update.
Secretary of State
If your lender does not respond after a debt is paid off, you can file a UCC-3 termination with your Secretary of State. This involves filling out the necessary paperwork and providing evidence that the lien has been satisfied or is no longer valid on the filed record.
Staying organized and following up with the Secretary of State’s office is crucial to properly removing the UCC lien from the public record. Keep records of all communication and documentation related to the process in case you need to provide proof of your efforts in the future. Be prepared for potential delays and proactively resolve any issues arising during removal.
Common Errors to Avoid
When removing a UCC filing, businesses should be aware of common errors to avoid. These include:
- Failing to obtain a termination statement from the secured party named
- Failing to file the UCC-3 termination statement with the correct filing office
- Failing to include the correct information on the UCC-3 termination statement
- Failing to pay the required filing fee
- Failing to update the business credit report after removing the UCC filing
These errors can result in the UCC filing remaining on the business’s credit report, which can continue to harm the business’s creditworthiness. Errors or incomplete information in a UCC-3 filing can lead to a rejection by the filing office. If multiple secured parties are involved, all secured parties must authorize the termination filing.
Frequently Asked Questions
Here are the most common questions about how to remove a UCC Filing.
What is UCC Lien termination?
UCC lien termination involves the legal process of ending a creditor’s claim on a debtor’s collateral. This process requires the secured party to file a termination statement to remove the outdated UCC filing from public records. For businesses, terminating a UCC filing is crucial for future financing and improving their credit score.
How do I find out there’s a UCC Lien on my business?
Public records and online databases are valuable resources for finding UCC filings related to your business. These sources contain important information about any liens or security interests that creditors may have in your company’s assets. You can search by the financing statement number, which is called the UCC filing number.
You can also review your business credit report from a credit reporting agency. By searching these records, you can uncover details about the filings against your business.
When checking public records, look for documents related to UCC-1 financing statements, which represent a creditor’s claim on specific assets of your business. Online databases provided by Secretary of State offices can offer convenient access to UCC filing information. If the lien remains after the debt is paid, a debtor must submit a termination demand letter to the lender. A UCC-3 is also used to amend or terminate a UCC-1 filing.
What’s the difference between a UCC Lien & UCC Filing?
Understanding the distinction between a UCC lien and a UCC filing is essential. A UCC filing is a legal document that lenders use to claim an interest in the debtor’s collateral. It is a public record that provides information about the creditor, debtor, and collateral.
On the other hand, a UCC lien represents the security interest a creditor holds in the borrower’s assets due to the UCC filing. It signifies that creditors can use certain assets to recover their dues if there are outstanding debts or legal obligations.
Do UCC Filings expire on their own?
Unless it refiles, UCC Filings typically protect a lender’s collateral interest for five years. The UCC filing usually stays on your credit report for up to five years, even if it’s inactive. Many borrowers request the filing be removed once the debt is paid off, so it doesn’t hinder future financing options.
How do I dispute a UCC Lien?
You can’t dispute accurate UCC liens, but you have options if there are errors or if the UCC lien was filed incorrectly. When disputing a UCC filing, it’s crucial to provide evidence that challenges the accuracy of the lien.
This evidence could include documents, records, or any information that supports your claim. For example, gather relevant documents to prove otherwise if you believe the filing contains inaccurate details about your debt or assets.
It’s essential to act promptly when disputing a UCC lien. Delays in addressing the issue may lead to complications in resolving the dispute. For instance, if errors in the collateral listed on the filing are not rectified quickly, it could negatively impact your ability to secure future business financing.
How to Remove a UCC Filing – Final Thoughts
A UCC lien is often necessary for business loan approval. If you make your payments on time and pay the loan in full, you can remove the UCC filing from your business credit report.
Removing a UCC filing involves specific steps, and understanding the process is crucial for safeguarding your business interests. Proactive measures are essential, whether disputing a UCC lien or finding ways around it.
Contact us if you have more questions about removing a UCC filing or applying for a small business loan. Our alternative business funding experts can help you find the best financing options for your goals.
