What Is a Uniform Commercia🌃l Code Financing Statement?

At the time that a business obtains a loan, the lender may file a Uniform Commercial Code (UCC) financing statement (UCC-1), which serves as notice to the state and other creditors of their security interest in the personaꦦl property of the debtor.

The UCC-1 publicizes the creditor's legal right to seize collateral if the borrower fails to make payments on the loan. It also establishes the creditor's priority over other creditors for that collateral.

A UCC-1 is a part of the UCC filing system. The UCC is a standardized set of regulations governing business and financial transactions in any state in the United States.

Understanding a UCC-1

The purpose of a UCC-1 is to disclose a creditor's security interest in a debtor's collateral. A security interest is a legal right to a debtor's property that's established by a contract, such as a loan.

The creditor will have the right to the property if the debt is not repaid. Lenders mu♉st incorporate comple𒊎ted UCC-1s in a business loan’s contract.

The UCC-1 form details the specific assets that will be seized—and in what order—from debtors if they default.

While aꦬny asset may serve as such collateral, the most commonly used items include real estate properties, motor vehicles, manufacturing equipment, inventory, and investment securities, such as stock and bond holdings.

As with any ordinary lien, len꧑ders must file the UCC-1 with the appropriate agenc꧂y in the state where the debtor company is incorporated.

About the UCC

The UCC was created in 1951 and adopted in 1953. Its goal was to ease the complexities of doing business across state lines. It provides a legal and contractual framework for doing business and has been adopted by all 50 states and the District of Columbia.

Although each state has adopted UCC laws in a s🔜lightly different form, the basic tenets are the same.

There are twelve articles governing various types of transactions. In addition to secured transactions, these include, for example, the sale of goods, bank deposits and collections, funds transfers, negotiable instruments, and title documents.

Types of UCC-1

Lenders have the o⛎ption of filing either of two UCC-1s:

• Specific collateral: These are commonly used in real estate or equipment transactions. They give lenders first-order secured rights to real estate properties or specific collateral, such as the equipment purchased with the loaned funds.
• Blanket lien: Blanket liens are also all-asset liens. This gives the lender secured rights to a range of assets, as long as they are detailed in the collateral section of the UCC-1 statement. Lenders tend to prefer this type of lien for the greater protection offered.

UCC-1 Impact on Credit Reports and🎉 Credit Scores

As with individuals, most businesses have a credit report and score. While a UCC-1 will appear on the credit report, it won’t necessarily negatively imp✱act a business' credit score unless the business defaults on the underlying loan.

The loan attached to the UCC filing will also increase a business’ 澳洲幸运5官方开奖结果体彩网:credit utilization ratio, which can negatively impact the credit score. Furthermore, the company꧂ won’t be able to use the same piece of property as collateral for a different loan if a lien is atta⛦ched.

Example

Suppose a con💙struction🌼 company applies for a business loan to purchase two new hydraulic excavators.

Bank XYZ offers the company a loan and files a UCC-1. During the loan period, the construction company loses a large contract and files for 澳洲幸运5官方开奖结果体彩网:bankruptcy.

Without the UCC-1 on record, Bank XYZ would not necessarily have first-order rights to the company's property. It might have to wait until all other lenders are paid.

However, because the bank filed a UCC-𝓡1 specific collateral lien on the two excavators, it immediately has priority and receives the property/cash stated in the UCC-1 statement.

The Bottom Line

A UCC-1 is a statement filed by creditors that notifies other creditors and the relevant state about their claims on personal assets that a business ဣuses as collateral for a secured transaction.

UCC-1s are filed with the appropriate secretary of state’s office.