UCC-1 Statement

UCC-1 Financing Statement (UCC Lien)

Key takeaways
* A UCC-1 is a public filing that notifies third parties a creditor has a secured interest in a debtor’s personal property.
* It establishes the creditor’s priority to specified collateral if the debtor defaults.
* UCC-1 forms are filed with the state agency (typically the secretary of state) where the debtor’s business is organized.
* Two common types are liens on specific collateral and blanket liens covering multiple assets.

What a UCC-1 does
A UCC-1 financing statement publicizes a creditor’s legal claim on a debtor’s personal property used as collateral for a secured transaction. The filing puts other potential creditors on notice and establishes the filing creditor’s priority for that collateral if the debtor defaults.

How it works
* A secured party and debtor enter a security agreement that creates a security interest in specified collateral.
* The creditor files a UCC-1 with the appropriate state office (usually the secretary of state) in the state where the debtor’s business is incorporated or organized.
* The UCC-1 lists the debtor, secured party, and the collateral description. That public record helps determine priority among multiple creditors.
* If the debtor defaults, the secured party may repossess or sell the collateral according to applicable law and the terms of the security agreement.

Common types of collateral
Collateral can include, but is not limited to:
* Inventory and receivables
* Manufacturing or business equipment
* Motor vehicles
* Investment securities
* Other personal property used in the business

Types of UCC-1 filings
* Specific-collateral lien: Secures a loan with particular assets (for example, a piece of equipment or a real property interest when appropriate). Priority applies to the assets listed.
* Blanket lien: Covers a wide range or all of a debtor’s assets specified in the filing. Lenders often prefer blanket liens for broader protection.

Impact on business credit
* A UCC-1 typically appears on a business credit report but does not automatically lower the business credit score.
* The underlying loan and increased credit utilization can negatively affect credit metrics.
* A UCC-1 prevents the same collateral from being pledged to another lender without resolving the lien or receiving subordinate agreement.

Example
A lender provides a loan to a construction firm to buy two excavators and files a UCC-1 describing those machines as collateral. If the firm later files for bankruptcy or defaults, the lender’s UCC-1 gives it priority to repossess or be paid from the value of those excavators ahead of unsecured creditors and later-filed claimants.

Why creditors file UCC-1s
* To reduce lending risk by creating a public record of a security interest.
* To secure priority over other creditors with respect to the described collateral.
* To simplify enforcement and collection if the debtor defaults.

Changes and termination: UCC-3
A UCC-3 form is used to amend, continue, assign, or terminate an existing UCC-1 filing. Common uses:
* Amend the collateral description or creditor information
* Continue the effectiveness of a UCC-1 (if allowed)
* Assign the secured interest to another party
* Terminate the filing when the obligation is paid in full

Removing a UCC filing
Procedures vary by state, but typical options include:
* Requesting the secured party to file a UCC-3 termination after the debt is repaid.
* Contacting the secretary of state’s office with proof the debt has been satisfied and requesting termination if the secured party fails to act.

Background: the UCC
The Uniform Commercial Code (UCC) is a set of standardized laws governing commercial transactions across the United States. Created in the early 1950s and adopted (with variations) by all 50 states and the District of Columbia, Article 9 of the UCC addresses secured transactions and is the basis for UCC-1 filings.

Bottom line
A UCC-1 financing statement is a key tool for secured lending: it creates a public record of a creditor’s security interest in a debtor’s personal property, establishes priority among creditors, and streamlines enforcement if the debtor defaults. Filings and changes are managed through state offices—typically the secretary of state—using UCC-1 and UCC-3 forms.