What Is a Uniform Commercial Code (UCC) Filing?

A UCC filing, also known a UCC lien, is when a lender files a public notice detailing the personal assets of a debtor that it has a stake in.

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If, for example, you put your business vehicle up as collateral for a loan, the lender will likely perform a UCC filing to let other lenders know it has an interest in your car.

Why do lenders file UCC liens?

Sometimes business will use the same item as collateral to obtain multiple financing offers. This is fine for a business to do, but lenders may not want to be second in line for a given item of collateral should you default on your loan.

Hypothetically, if you had three liens on the same item—let’s say a tractor—the lender who took out the first lien has the highest priority on that collateral. So, if you were to default on all three loans at the same time, the lender in the first position would have the right to seize and sell your tractor before the lenders in the second and third position.

This is why lenders publicly file liens: both so they can stake their claim on your collateral and to see which other lenders have a stake in your collateral. 

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Where are UCC liens filed?

UCC liens are filed in the state of the business taking out the loan. But despite the fact that liens are filed at the state level, they are determined by federal laws.

UCC stands for uniform commercial code. This code is a huge series of laws and regulations dealing with a multitude of business-related issues. The UCC liens discussed here are covered in Article 1 of the UCC.

These laws establish a uniform code across all states so that cross-state business deals can be more legally simple. This allows lenders to have similar legal processes for filing collateral liens no matter which state their client works from.

How many types of UCC liens are there?

There are two types of UCC liens that can be filed.

UCC liens against specific collateral allow lenders to specify a given piece of collateral that’s being used to obtain financing. Equipment loans, for example, often use the equipment being financed as the collateral.

UCC blanket liens give a lender an interest in all the assets of the business seeking the loan. Lenders prefer blanket liens because they tie financing products to multiple kinds of assets and collateral, making it easy to recoup losses should the business default on their loan. These types of liens are common with term loans and SBA loans.

How do liens impact your ability to get financing?

Active liens make it difficult to acquire additional financing. Lenders don’t want to be second or third in line for your collateral, so usually once something has a lien, it can no longer be used to obtain additional financing.

That said, businesses may still be able to obtain unsecured loans. However, even in the case of obtaining an unsecured loan, the lender may look to see if you have current liens on your assets to see if you are currently in debt.

Additionally, if you have defaulted on a loan and your lien goes into collections, your credit will be seriously impacted and you will have a hard time finding good financing offers.

How do you remove a UCC-1 lien?

The easiest way to remove the lien is to pay off your loan. While the UCC-1 statement may remain on your record for up to a year after repayment, it will display as having been paid off.

You can also request that your debtor file a UCC-3 termination. You can ask for this filing to be performed as soon as you make the final payment on your loan.

UCC liens lapse after five years, so it’s common for lenders to simply wait for the lien to lapse instead of filing a UCC-3 termination. But you can specifically ask for the termination to be filed once you’ve paid off the loan to get the UCC filing off your record.

What kind of information is usually included in a UCC filing?

UCC filings usually include these three things:

  • The debtor’s name and address
  • The lender’s name and address
  • A statement that reasonably identifies the collateral being used

When you or somebody else looks up a UCC lien in an online database, this information will be publicly available.

When do lenders usually submit a UCC filing?

Lenders typically submit UCC filings after they have approved you for some kind of secured loan. They will send the appropriate information and documentation to the Secretary of State in the state where you do business.

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The takeaway

UCC filings are an important legal practice that show when lenders have a lien against your collateral. Generally, lenders want to be in first position on any given piece of collateral, so it’s difficult to leverage the same collateral with multiple loans.

If you default on a loan, the UCC lien gives your lender the right to seize and sell any and all collateralized assets. Defaulting may cause a serious hit to credit. But loans secured by collateral allow business to get better loan terms, so it’s common for small businesses to have UCC liens on some of their business assets.

If you’re looking for a loan but don’t want to mess with putting up collateral, take a look at our top picks for best unsecured loans.

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Andrew Mosteller
Written by
Andrew Mosteller
Former Business.org staff writer Andrew Mosteller covered small business expansion, management and advertising.
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