What Is A UCC Financing Statement, And Why Is One Filed Against Your Business?
If you run a business, you may be anxious to know that a financing statement was filed under the Uniform Commercial Code (UCC) on your business. Though such a situation can sound quite threatening, folks tend to worry more about this than necessary. In fact, a UCC financing statement simply serves the creditor’s interests in securing their claim on the collateral. It may be helpful to know what UCC filing is all about.
What is a UCC financing statement?
A financing statement under the UCC is known as a UCC-1. It is a form of public notice filed under the UCC. The purpose of filing such a document is to notify other creditors that there is an interest by a creditor in specific property owned by the debtor.
For instance, if a business obtains financing to buy machinery, cars, goods, or other valuable property, the creditor can file a UCC-1 to perfect its rights to that property in the event of the debtor’s default.
The financing statement does not perfect the interest; rather, it provides public notice of that interest.
What assets can be covered?
The UCC financing statement can apply to particular pieces of property or all of the business assets. As per the arrangement, the collateral can comprise the following:
- Equipment
- Inventory
- Accounts receivable
- Machinery
- Vehicles for business use
- Intangible assets
- Future business assets
Given that most financing arrangements include broad descriptions of collateral, owners should be careful about the contents of the loan documents.
Why would a lender file a UCC-1?
Filing a financing statement is necessary for lenders if the borrowing party is unable to repay the loan. The filing allows the lender to take priority over future creditors who may be interested in the same property.
The filing of financing statements becomes critical in case of any problems with a company. For instance, the order in which financing statements are filed usually determines a creditor’s priority to be paid from the debtor’s property.
Can an incorrect UCC filing cause problems?
Yes, an invalid UCC financing statement can hinder a company from securing more financing. Many banks check UCC filing information before granting loans, and an obsolete UCC filing can make it difficult to secure new financing by raising doubts about its existing encumbrances.
Again, although rare, false UCC filings can significantly complicate a firm’s legal situation.
What should business owners do?
Should you come across a UCC financing statement that is filed against your business, do not automatically assume that it is improperly filed. Instead, find out what the reason for the filing is, and see if it is properly reflecting an ongoing lending transaction.
If the underlying debt is paid off, the creditor may be required to file a termination statement to remove the financing statement from the records. If the filing is inaccurate or inappropriate or is inhibiting you from raising money, a consultation with a business lawyer may help.
Talk to a Columbus, OH, General Business Attorney Today
Kohl & Cook Law Firm, LLC, represents the interests of Ohio businesses as general counsel. Call our Columbus business lawyers today to schedule an appointment, and we can begin advocating on your behalf right away.
