Learn what a UCC Statement is and how to search state databases to look up business debts.
The UCC or Uniform Commercial Code refers to laws that govern the sale of certain commercial transactions when a lender is involved.
A UCC filing (sometimes referred to as a UCC-1, UCC lien or financing statement) is a notice filed by a creditor when they make a loan to a borrower to purchase business assets. This filing provides the creditor with the security that if the debtor defaults on the debt, the creditor can foreclose on the asset.
The UCC filing is made with the Secretary of State. Each state has laws on the rules and regulations over secured transactions, the UCC is used across the United States to ensure reporting consistency and safety for lenders. These rules provide lenders the knowledge of whether an asset that is being pledged is available to use as collateral.
UCC liens can be filed on just about any asset. Some of the more common assets include: real estate, vehicles, equipment, inventory, accounts receivable and more. A UCC lien does not generally impact the day-to-day operations of a business, but may make it more difficult in getting additional funding, depending on the type of UCC filed.
Why is a UCC Filed?
A Uniform Commercial Code filing on business assets serves as a notice to any potential creditors of assets that are pledged. This provides security to a lender as that borrower can’t pledge those assets for another loan. A large part of the loan making process is the lender is able to take the asset back should the borrower not be able to pay on the debt. This collateral is then able to be sold to recoup a portion of the debt. A UCC-1 establishes the lender as a secured party, so even if the borrower goes bankrupt, the lender is paid before unsecured creditors.
Even though every state has commercial transaction laws, lenders often provide business financing across state lines and it’s not practical for a lender to search each state’s records when making a loan. The UCC gives a lender assurance that their collateral is protected.
A UCC also keeps the borrower from selling the asset and keeping all the proceeds. Any remaining debt would be paid to the secured party first. The only way to remove the lien is by paying off the debt.
Types of UCC Liens
There are two ways UCC are commonly used.
UCC Lien on Specific Collateral
A lender can write a UCC-1 against a particular asset. This is common when a loan is being requested for a specific purpose, like a piece of equipment, real estate or inventory.
UCC Blanket Lien
A UCC-1 blanket lien, sometimes referred to as a general lien, is a lien placed on all business assets. Blanket liens are commonly used for commercial and SBA loans and while this type of lien makes it easy for the bank to collateralize a loan, it can cause issues for a business because they lose the ability to pledge assets for additional funding later on or to sell equipment. The lien holder has to file and release assets which may be a challenge for some borrowers to get them to do.
When do UCC Filings Expire?
A UCC-1 filing automatically expires within five years of filing unless the creditor extends it.
Once the debtor pays off the lien, the creditor should file a UCC-3 to remove the lien from the asset.
How is a UCC-1 Statement Filed?
A creditor will file a UCC-1 statement with the Secretary of State in the state where the business is located. The financing statement will include:
- The borrower’s name and address
- The lender’s name and address
- A description of the asset being secured
Since UCC liens are filed with the Secretary of State, these records are made public so they are available for anyone to look up. Most states allow for the search to look these filing up online without a fee, however some states restrict the amount of information provided.
UCC liens will typically show up on a business credit report.
Search for UCC Liens by State
Every state is different in how one would search the UCC database. Click on a state below to see how to do a UCC lien search in each state.
|District of Columbia||Montana||Texas|
|Idaho||New Jersey||Virgin Islands|
|Indiana||New York||West Virginia|