If you have reviewed your business credit reports, you may have seen them include a section called “UCC filings.” While they are commonplace, many business owners don’t know about them until they try to get small business financing. UCC filings can make it more difficult for small business owners to get certain small business loans and may affect business credit scores.
Here’s what you need to know about UCC filings, your credit and financing.
What is a UCC filing?
A UCC filing is a legal notice a lender files with the secretary of state when it has a security interest against property or assets. It gives public notice that the lender has an interest, or lien, against the business asset used to secure the financing. The term “UCC filing” comes from the Uniform Commercial Code.
What is the Uniform Commercial Code (UCC)?
The Uniform Commercial Code (UCC) was created to govern the sale and leases of goods. As the U.S. economy grew, so did the need to regulate business transactions in a uniform way. The UCC was created to standardize the process of business transactions in multiple states by creating more harmony and uniformity.
The code in general is divided up into 11 articles, each containing language over various forms of commercial transactions:
Article 1: General Provisions (contains generic interpretation language)
Article 2: Sales (refers to the sale of goods)
Article 2A: Leases (refers to the leasing of goods)
Article 3: Negotiable Instruments (refers to commercial paper and promissory notes)
Article 4: Bank Deposits and Collections (refers to banking and collections)
Article 4A: Funds Transfers (refers to bank transfers)
Article 5: Letters of Credit (refers to letters of credit)
Article 6: Bulk Transfers/Bulk Sales (refers to asset liquidation)
Article 7: Documents of Title (refers to bailment of goods)
Article 8: Investment Securities (refers to securities and financial instruments)
Article 9: Secured Transactions (refers to the legal interests of creditors in secured transactions)
What does a UCC-1 mean?
The UCC-1 protects the interests of the lender if a borrower defaults or files for bankruptcy, in which case those asset(s) would be foreclosed on, seized or sold off. The filing will generally give the creditor priority over other creditors.
This is the type of UCC filing involved in most small business financing transactions. It may also be referred to as a UCC financing statement or a UCC-1 financing statement.
Even if your business does not have collateral in the form of equipment or real estate, a UCC-1 filing may be used to secure interest in accounts receivable, inventory or other forms of collateral.
Your business credit report will indicate if a lender you’ve worked with put a UCC filing on your report, and whether or not it’s still there. Check your business credit scores and reports for free with a Nav account.
How a UCC filing may affect business financing
Some lenders will not lend to businesses with what they deem too many UCC filings. They consider it too risky. Or the UCC filings may leave them realizing there is no collateral opportunity to secure a new loan. Either way, if not properly managed, UCC-1 liens could delay or flat out deny your ability to get better types of business financing.
Having multiple UCC filings on your business credit report can have negative effects in general on your overall credit risk, scoring and other associated risk analysis, (across all three business credit bureaus) and can even kill your chances at getting financing for your business.
Even if you had a previous business debt obligation that was paid in full, UCCs can stay on your report for years. Once a debt obligation is paid in full, financing firms don’t always terminate the lien automatically.
The lender with the oldest UCC-1 filing position is considered to have the highest “priority” in relation to claim on the asset(s). Most high-profile lenders prefer to be in first position and thus will not file after that of another lender. Sometimes it could take one to six weeks to get the termination of the old UCC-1 liens finalized.
As a result, you should check before you apply for financing to make sure your business has no UCC-1 filings still active for debt obligations already paid. (You can do this by checking your business credit profile, which you can do at Nav.)
In addition, once a secured debt obligation is paid off, you should request immediately that the lender terminate the lien by filing a UCC-3 form.
What is a UCC lien filing?
A UCC lien filing is simply another way to refer to a UCC filing. Both indicate a lien has been placed against property of the business.
Where can I find if my business has UCC filings?
An easy way to find out if there are UCC filings against your business is to check your business credit reports. Not all reports may contain this information, so it’s a good idea to check with multiple business credit bureaus which you can do at Nav.com.
Alternatively, you can hire an attorney to run a UCC search on your business name (provided that was the debtor name that would have been used when applying for credit.)
What is the difference between a UCC and a lien?
The UCC filing creates a public notice of the lien.
How long do UCC liens stay on a business credit report?
There is no time limit for reporting UCC filings on business credit reports. Each business credit reporting agency may have its own policy for reporting them.
Do UCCs liens expire?
The UCC-1 is active for five years from the initial filing date, which means that a lender will need to renew the filing to keep interests protected for loan terms extending longer than five years. In addition, a lender may file a financing statement amendment to update secured asset listings.
Does a UCC lien show on personal credit?
Although a creditor may file a UCC-1 against personal property, they do not appear on personal credit reports.
How do I get rid of a UCC lien filing?
If your business paid the debt that was the basis of the filing, you want to make sure the company placing the lien has filed updated paperwork with the court to indicate it has been satisfied and released. Unfortunately, companies may be slow to do this so you may have to get involved yourself. You’ll need to either get legal help or contact the court in the jurisdiction where the lien was filed to request an update.
How serious is a UCC filing?
A UCC filing in and of itself is just information about a creditor’s lien against property of the business. These are very common in real estate and commercial transactions, and aren’t necessarily negative in and of themselves. However, some lenders may not approve new loans to borrowers with too many UCC filings. (Each lender will have its own threshold.)
For that reason, you will want to:
- Understand whether a new lender will file a UCC-1,
- Check your business credit reports to determined if your business has UCC filings against it, and if so,
- Make sure the UCC filing is updated when the debt is satisfied.
Unsecured small business loans typically do not involve a UCC filing.
A final note about UCC filings
Lenders competing for borrowers might use the UCC as a marketing tool—because UCC filings are public records, lenders can use these records to find customers that are already familiar with their lending products to pitch them financing offers. Make sure to vet all prospective lenders carefully as well as understand their process of filing a UCC-1.
Remember that your ability to continue expanding your business credit profile depends a lot on how your business looks in the eyes of lenders, and this includes the presence of UCC filings on your report. It’s a heart-breaking situation to be in, where you are approved for the business loan that can fund the next big growth opportunity for your business, only to have it delayed or denied due to the active existence of old or inefficiently structured UCC-1 filings.
This original version of this article was written by John Tucker in December of 2015. It was most recently updated by Gerri Detweiler May 24, 2022.
This article was originally written on February 15, 2019 and updated on February 8, 2023.