How UCCs Can Hurt Your Business Credit Report

How UCCs Can Hurt Your Business Credit Report

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Back in December 2015, I wrote about how UCC filings play into your business credit reports. More specifically, it was an overview of the Uniform Commercial Code (UCC) and what a “UCC” meant when it was identified on your business credit report.

Here’s how a UCC filing works. Once you’re approved for financing, your creditor will file a UCC-1 filing statement creating interest against specific assets related to the financing (such as a piece of equipment, your commercial property or even your business inventory). In some case, a creditor might make a blanket filing to include all of your assets.

The UCC-1 filing then protects the interests of the creditor in case you default or go bankrupt, giving the creditor active interest in your assets for 5 years. At the end of the 5 years, the creditor will need to file amendments to extend the duration.

For a more detailed account of how UCC filings work, check out our previous article. Continue on for more in-depth information on how UCCs can negatively impact your business credit standing, plus how to dispute any errors you may find in regards to UCC filings.

Where a UCC Filing Would Show Up on Your Report

You can purchase your business credit report from a business credit reporting agency — the major ones are Dun & Bradstreet, Experian and Equifax. Unlike personal credit reports, you are not entitled to a free annual copy of your business credit report under federal law.

You can access your business credit summary reports for free with a Nav account. In the REPORTS tab of your account, you can access your Experian business credit summary report as well as your D&B summary report, you’ll see the UCC filings grouped with other derogatory information—including lawsuits, tax liens and bankruptcies—right above your trade account and payment history details.

More details about UCC filings on your business credit report can be found by upgrading to Nav Premium for your full reports. Depending on which report you’re looking at, you’ll be able to see what entity filed the UCC, the date filed, jurisdiction in which the UCC was filed, the assets which the filing pertains to, and the type of filing (whether the filing is a continuation of a previous UCC or an original UCC).

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How UCCs Negatively Impact Your Business Credit Report

When a UCC-1 is filed, that filing indicates that a creditor has particular interest in a piece of equipment, another business asset or a blanket listing of all assets.

This means that other prospective creditors will have to take a 2nd position (known as the Junior Secured Party) using a subordinate agreement to the 1st position (known as the Senior Secured Party) of the first creditor in order to close out on the financing. However, some creditors do not prefer to be in a Junior Secured Party position and will decline financing altogether.

This would be just a normal course of business if you actually had an existing creditor with an asset already secured, but what if you don’t have an asset currently secured and the UCC-1 filing on your business credit report is an error, either a filing you have no direct involvement with or a UCC that was not removed after it ran its 5-year course? This would mean that unfortunately, you would be declined financing. Or, if you have already paid off a prior financing arrangement, sometimes the creditor will not immediately remove the UCC, in which case you would need to contact them to terminate the filing through a UCC-3 filing statement. It’s important to keep an eye on your credit reports to make sure that UCC filings are “aging off” accurately so you can obtain business financing when you need it.

How to Check for UCC Errors Using Your Business Credit Scores

Two of the major business credit reporting agencies are Experian and Dun & Bradstreet, or D&B. The Intelliscore Plus from Experian and the D&B PAYDEX score both use measurements of 1 – 100, with anything over 80 being considered the top credit tier.

Both scores from Experian and D&B are included in your free Nav account. Use the Disputes tool under the TOOLS tab to check each report and your personal credit report for errors every month. Disputes will help you correct inaccurate information on both your personal and business credit reports.

Having a UCC filed on your business credit report can have negative effects in general on your overall credit risk, scoring and other associated risk analysis, and can even kill your chances at getting financing for your business. Don’t let misinformation be the cause of why you were denied.

Ready to see your credit data and start building better business credit? Check Your Personal and Business Credit For Free (No Credit Card Required).

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About the Author — John Tucker has over ten years of professional experience in Commercial Finance and Business Development. Tucker is also an M.B.A. graduate and holder of three bachelor's degrees in Accounting, Business Management, and Journalism. To connect with John Tucker, feel free to send him a connection invite via LinkedIn at: www.linkedin.com/in/johntucker99

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