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Are you a business owner who’s fallen behind on a few of your debts? If so, you may have noticed a UCC lien on your credit. If you see this, it’s important to take action and pay your debts quickly.
So, what is a UCC filing? Well, we’ll answer that question and more below. Just keep reading.
What Is a UCC Filing?
A UCC-1 filing is a direct legal term for submitting this form, as it is defined in Section 1 of the Uniform Commercial Code. A UCC filing or a UCC lien are the most general terms used to describe it. A UCC financial document, also known as a UCC-1 financial statement, is the name of the form itself.
This report is filed with the secretary of state’s office in the jurisdiction where the debtor’s company is located. It acts as a formal judicial order to all creditors that the creditor has a legitimate claim to the debtor’s estate. This ensures that the creditor has the legal right to seize all collateral used to secure financing before the debt is paid off.
Does a UCC Filing Affect Credit Your Score?
Any UCC liens reported on your assets over the last five years will appear on your company’s credit history sheet. The filing will potentially affect your ability to borrow money from other creditors.
The lender who files the lawsuit, for instance, will get the first share of your money. If a potential lender notices a UCC-1 filing on your credit history, they may refuse to lend to you. If the company goes bankrupt, the lender can only reclaim their damages if the lawsuit of the first creditor resolves.
The Types of UCC Filings
UCC liens against certain collateral: Instead of having an interest in any of a company’s properties, lenders have an interest in one or two specified assets. This is usually a factor in inventory and equipment business deals.
Blanket liens in the Uniform Commercial Code: This lien grants a creditor a security interest on all of the debtor’s properties. This form of lien is often used for bank and substitute lender loans, as well as lines of credit secured by the Small Business Administration.
Lenders favor blanket liens because they are covered by several properties and therefore pose a lower risk. A blanket lien can exclude certain properties that are exempt from the lien in particular situations. This could happen if the available funds are more than enough to repay the loan in the event of a default.
UCC Filing Removal
The lender can free your company from all restrictions on your property after you’ve settled a business loan. They can do so by submitting a UCC termination notice to the state’s secretary of state’s office.
However, since this can take a while, it’s likely that expired UCC filings could show up in your company credit history. When you’ve paid your last debt payment, contact the creditor to request lien cancellation in writing.
Check out these tips on reading a UCC report.
Understanding a UCC Lien
Hopefully this article answered your question of, “What is a UCC filing?” As a business owner, it’s important to pay all of your debts to avoid these kinds of issues.
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