You would, of course, work with your lender to designate what the collateral will be before you sign any documentation committing to the loan. If you sign a secured loan, all of the designated collateral is now the property of the lender until your loan is fully repaid. Your lender can seize that collateral if you fail to repay your loan. When a lender files a UCC-1 with the appropriate secretary of state — meaning the secretary of state for your residential state, or the state where your company is incorporated or organized — the lender is said to "perfect its security interest.
In cases where the collateral is tied to a specific physical property rather than financial assets, the UCC-1 is filed in the county where the physical property is located. The UCC-1 lien becomes a public record, allowing potential creditors to see whether a given property is already pledged against an existing lien. Do your due diligence and check for any UCC liens before applying for a loan. You can do this by going to the website of your state's secretary of state the National Association of Secretaries of State has a roster of Secretary of State offices.
Having a UCC-1 filing or lien tied to your name or business isn't necessarily a bad thing. It's simply a public record stating that a lender has the rights to certain assets until that loan is repaid. That record will also show if the loan has been repaid or not.
However, we've shown above that an active UCC-1 lien can make it difficult to qualify for other loans, even if you've already repaid your debt.
Pay off your loan: This is the surest way to have the UCC-1 filing removed. Depending on the state, the financing statement can remain in your state's searchable index for one year after the loan is repaid. In that case, the statement would reflect that the loan is repaid.
You should always get confirmation from the lender that the UCC-3 was filed. This termination statement can remove the UCC lien if processed. We recommend you request your lender submit a UCC-3 with your final loan payment.
A UCC-1 filing is a legal form that a creditor files to secure its interest in a borrower's property or assets used as collateral for a loan.
Another drawback for a small business is that the business operations can also be jeopardized if the creditor sells the equipment or business asset in case of a loan default. UCC 1 serves as a lien on secured collateral relating to a business loan under the Uniform Commercial Code.
A UCC lien against specific collateral is a preferred type of lien when the asset can be specifically identified. The blanket lien provides flexibility to the lender to secure a lien on different types of assets outlined in the UCC 1 form.
This type of lien is commonly used by banks and alternative lenders or loans issued by the Small Business Administration SBA. Before getting a loan where your lender may file a UCC 1, you have the ability to research your lender to see their UCC 1 filings. By doing research, you can see if they are in the habit of filing a UCC 1 and get other useful information. The filing will be done in the state where you reside or where your company was incorporated or organized.
For the creditor, the benefits are that the filing of a UCC 1 allows the establishment of its priority on the collateral asset in the event the debtor defaults on loan.
This means that should the borrower fail to respect the obligations of the loan, the creditor can exercise its security interest over the asset underlying the collateral. After the expiration of the five-year term, the UCC filing will be expired and will no longer produce any legal effects. A creditor must extend the UCC 1 filing before the end of the five-year period to ensure the lien remains in effect.
If you enjoyed this article on UCC-1 , we recommend you look into the following legal terms and concepts. File at central filing office of state where entity was formed or organized i.
Need Help? Call Us: Sign up for Blog Updates Stay up to date on industry news affecting your business. Email Address Sign Me Up. A continuation statement is an amendment attached to a UCC-1 financing statement. Continuation statements extend the lender's lien on the borrower's collateral past the original financing statement's expiration date. When a lender files a continuation statement, the continuation statement extends the UCC-1 financing statement by five years from the date of filing.
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