UCC Financing Statement (UCC-1)

The public notice a lender files to stake its claim on a borrower's equipment, inventory, receivables or other business property - the filing that decides who gets paid first when a business fails.

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What it means

When a business borrows against its own property - equipment, inventory, accounts receivable, vehicles used in the business - the lender takes a security interest: a right to seize and sell that property if the loan is not repaid. A UCC financing statement, commonly called a UCC-1, is the short public notice the lender files with the state, usually with the secretary of state, to announce that interest to the world. Filing it is what ordinarily "perfects" the interest, which is the legal term for making it good against other creditors and against a bankruptcy trustee.

Priority is the reason the filing matters. As a general rule the first lender to file wins over later ones as to the same collateral, whether or not the later lender knew of the first. A business that has granted a blanket lien on "all assets" to one lender will find that a second lender either will not lend or will insist on a subordination agreement, and a buyer of the business will search the filings before paying anything. Conversely, a lender who never filed, or filed under the wrong legal name, may be treated as unsecured when it matters most.

A financing statement is a notice, not the loan agreement: it identifies the debtor, the secured party and the collateral in general terms, and says nothing about the amount owed. It lapses after a fixed period unless a continuation statement is filed, and once the debt is repaid the debtor is entitled to have it terminated, which is worth insisting on - a stale filing left of record reads as a live lien to the next lender who searches.

Where this comes from

When people hire a lawyer for this

Two situations justify advice: before granting a blanket lien, since an "all assets" filing by a first lender can foreclose every later borrowing option; and when buying a business or a significant piece of equipment, where a UCC search and a plan for clearing the filings it turns up belong in the purchase agreement. After a default the questions are about priority and process, and by then the filings have already decided most of the answer.

Worried about the cost? A lawyer can be hired for one part of a case only (limited-scope representation), may be paid from what a claim recovers (contingency fee), or may be free through a pro bono program or legal aid; a court can also waive its own filing fees.

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