What is a UCC filing, and why is there one on my business?

A UCC filing, usually a form called a UCC-1 financing statement, is a public notice that a funder has a security interest in some or all of your business assets. It's filed with the state under Article 9 of the Uniform Commercial Code. It tells the world, and every future funder, who has first claim if things go wrong.

What a UCC-1 does

California's Secretary of State puts it plainly: a financing statement "is filed to perfect a security interest in named collateral and establishes priority in case of debtor default or bankruptcy."

"Perfect" means the claim is effective against other creditors. "Priority" means the first to file generally gets paid first from that collateral. That's why funders file quickly, and why a second funder looks at who filed before them.

What's in one

The form is short. Under UCC § 9-502, it needs only the debtor's name, the secured party's name and an indication of the collateral.

The collateral line is the part to read. It might name one machine. Or it might say the filing covers "all assets or all personal property", which UCC § 9-504 allows. That's a blanket lien, and it covers your receivables, equipment, inventory and bank accounts.

Why you might have one

• Equipment financing: a filing on the equipment bought.
• Merchant cash advance: a filing on your receivables, sometimes on all assets.
• Line of credit or term loan: a filing on receivables, inventory or all assets.
• Leases: some equipment lessors file to protect their position.

How long it lasts

A filed financing statement "is effective for a period of five years after the date of filing." It lapses at five years unless the secured party files a continuation statement, which it can only do in the six months before the lapse date.

So a six-month advance can leave a filing on your record for years after you've paid, unless someone takes it off.

How to get one removed

Under UCC § 9-513, once nothing is owed and there's no commitment to lend more, the secured party must file or send a termination statement within 20 days of receiving an authenticated demand from you. That applies if you didn't authorize the filing in the first place, too.

Sterling's take: paying off the debt and clearing the filing are two separate jobs. Do both, and keep the paperwork.

What to do next

1. Search your business name in the UCC records of the state where it's organized. In California, for example, the Secretary of State will provide a search certificate or copies of filings on an Information Request (Form UCC-11).
2. Match each filing to a live or paid-off debt.
3. For any paid-off debt, send a written demand for a termination statement and diary 20 days.
4. Before taking new money, ask whether the funder will file on all assets or specific ones, and what that means for a second advance or other borrowing later.