About 16,000 businesses in the US filed for bankruptcy last year. These companies have a history of poor credit due to the lack of informed managers.
Most of the managers have little or no knowledge of basic business laws. For instance, they may be familiar with the term UCC filing form but are clueless about what it means.
Understanding these financial laws is the beginning of protecting your business from bankruptcy. Don’t go into a UCC lien without knowing what it entails.
Let’s take a deep dive into a detailed UCC filing definition and what that means for your business.
What Is UCC?
The uniform commercial code is a set of laws written by the states and the federal government. The main aim of the 1952 act was to harmonize business transactions across all states in America.
The state obligates every business owner to operate by these laws. By creating a security net, the policy lowers the risk of business incurred by lenders.
UCC Filing Form
More times than once, you may have had to outsource an external loan to fund your business. Before you access the funds, you sign a credit contract that gives the lenders some rights over your assets.
The UCC file includes the names and addresses of both parties. It also consists of the percentage of assets the lender can claim as collateral.
The lien aims to protect the creditors’ interests. If you fail to make payments, they can foreclose or sell your assets. The UCC 1 financing statement is a notice that the lenders use to announce seizing a debtor’s property.
Some people take out loans from many creditors at once. The first creditor to file for the UCC lien holds the first rights to the debtors’ properties. Thus, the debt of the first holder of the UCC file must be repaid entirely before allocating the assets to the second holder.
Lending institutions file these legal files as soon as you take out a loan. To avoid friction among lenders, creditors reject shared collateral. It’s unwise to get loans from multiple creditors because you’ll end up spreading risk across all your assets.
Types of UCC Filings
Some UCC filing forms specify the assets under collateral such that if you haven’t repaid the loan, you’ll only lose a fraction of your assets. UCC filing forms against specific collateral are most common in the case where you need money for inventory or equipment.
Otherwise, a blanket lien gives creditors the right over all your securities. When reading UCC file terms, you can easily sign under a blanket lien for a small loan if you aren’t keen. Under a few circumstances, the lien exempts some assets.
These types of high-risk loans have led most businesses to bankruptcy. Creditors prefer blanket liens because of the assurance that they’ll get their funds back.
It’s wise to outsource legal aid when signing over contracts. This will ensure proper scrutiny over the terms.
What Does It Mean for Your Business?
The UCC filing form expires after five years. So if you take out a long-term loan, you’ll need to renew the lien every five years.
A UCC file under your business name implies that creditors will be less likely to offer you financial aid. This principle especially holds when there is a blanket lien.
No lender out there wants to fight over assets with other institutions. Besides, you don’t want someone suing you for all your assets.
It speaks volumes in your credit score when you pay one loan before moving on to the next lender. If you are consistent with your installments, you’ll qualify for bigger loans with lower interest rates. The lien can only lower your credit score if you default on a payment.
Therefore, be keen on the size of the loan you take. Remember that borrowers won’t remove the UCC filing as soon as you repay the debt. You’ll have to follow up with the creditors.
Collateral Assets
Most of the creditors will place a UCC lien against real estate property. If the loan is relatively small, they can claim rights over your car or house. This will depend on your mortgage value.
Yet, most lenders won’t claim the money in retirement plans. The UCC filing rules vary from state to state. So you’ll have to check with the laws of your state to know what assets will be protected in the worst-case scenario.
How to Remove UCC Filings
As a business owner, it’s wise to do your due diligence when applying for financial aid. The easiest way to confirm if you have a UCC lien is through the secretary of state’s website.
You may find that the current lien prevents you from getting a bigger loan. However, you can get rid of the UCC filing form by paying off the loan.
Most debtors opt to pay off a small loan to qualify for a bigger loan. Note that the UCC file won’t be taken down immediately. However, it will reflect that the debt has been repaid.
This is beneficial to your business because potential investors and future lenders will find you more credible. Ask the lender to file a UCC-3 file. The filing form will confirm the termination of your UCC lien.
UCC Filing Definition
The main goal of the UCC act was to create harmony in the financial markets. The security allows smooth transactions between lenders and debtors.
After going through our detailed UCC filing definition, we are sure that you will make better business decisions.
Learning more about business law will help you protect your company against heavy losses. A UCC filing form is a notice to the debtors that the creditors will seize their assets. Having multiple UCC liens makes your business look less credible to investors.
To build a high credit rating, pay loans before moving to the next lender. If you enjoyed reading this piece, find more articles on this site.
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