What is a UCC-1 Statement?

A UCC-Uniform Commercial Code-1 statement is a legal document that creditors file to publicly announce their rights to potentially seize the personal belongings of debtors who default on business loans they make. These notifications, sometimes shortened to UCC-1, are usually published in local newspapers to inform the public of the creditors’ intentions.

All commercial loans under the Uniform Commercial Code (UCC) are subject to UCC-1s, establishing a relative priority over which particular assets may be seized and in what sequence. They also reinforce the collection hierarchy when a debtor has many lenders.

Comprehending UCC-1 Declarations

Regarding secured collateral, the UCC-1 statement functions as a lien. Its elements and submission criteria are similar to residential mortgage loan contracts. The Uniform Commercial Code (UCC), which regulates commercial transactions and operations in the US, has the UCC-1 statement as one of its directives.

For a business loan to be effective, the lender must provide completed UCC-1 declarations in the loan contract, per the UCC’s ninth article, “Secured Transactions.” The statements should include comprehensive information on the borrower and an itemized list of all the assets listed as loan collateral that are secured. Although almost any asset may be used as this kind of collateral, investment securities like stocks and bonds, motor cars, manufacturing equipment, inventories, and real estate are most often used.

Lenders must complete the UCC-1 statement by submitting it to the relevant agency in the state where the debtor corporation is formed, just as they would with any other ordinary lien. UCC-1 statements are often submitted to the secretary of state’s office, timestamping the document and giving the related parties a file number.

To use industry jargon, sending UCC-1 notifications is “perfecting the security interest” in the debtor’s property.

UCC-1 Statement Types

Lenders can submit the two kinds of UCC-1 statements listed below:

• Particular UCC-1 collateral statements. These are most often used in deals involving equipment or real estate. They provide lenders with first-order secured rights over real estate holdings or specific collateral, such as equipment bought with borrowed money.
• Lien in a blanket. As long as the conditions of these liens are specified in the collateral part of the UCC-1 statement, this grants the lender secured rights over various assets. “Lenders often prefer all-asset” or blanket liens.

The Impact of a UCC Filing on Credit Scores

Most organizations have a credit record and score, just as people do. A UCC lien will appear on a company’s credit record, but unless the company defaults on the underlying loan, it will sometimes have an instantaneous negative effect on its credit score.

A company’s credit usage ratio will rise due to the loan included with the UCC filing; if this percentage rises too high, it may negatively affect the score. Furthermore, if there is a lien on the property, the company won’t be able to use it as collateral for another loan.

A UCC-1 Statement Example

Suppose Alex’s Excavation, a construction firm, wants to buy two new hydraulic excavators and files for a business loan. Bank XYZ files a UCC-1 as part of the contract and is interested in lending money to Alex. Alex’s Excavation lost two of its most significant building contracts shortly after, forcing the business to declare bankruptcy.

Bank XYZ most likely would not have first-order rights on Alex’s property since the firm had several lenders, and it would have to wait until all other lenders were paid. However, the bank got the cash and property listed in the UCC-1 statement on time as it filed a particular collateral lien on the two excavators.

What advantages come with submitting a UCC-1 (Uniform Commercial Code-1) statement?

Creditors may use their customers’ personal property assets as collateral, or “secure,” for a loan by filing a UCC-1 statement. A UCC-1 upgrades the lender’s standing to that of a secured creditor, guaranteeing payment in the case of a creditor’s failure or bankruptcy filing.

How is a UCC filing removed?

There are two procedures to release a UCC lien. However, state laws differ:

• The first is to file a UCC-3 statement and request that the lender quickly release the lien upon full debt repayment.
• The alternative is to go to your local secretary of state’s office, testify under oath that you have paid off the obligation in total, and ask to have the UCC-1 removed if your lender does not file a UCC-3 after you have paid off the loan.

What is the duration of a UCC filing?

The duration of a UCC-1 statement is five years. The lien expires after five years and becomes invalid.

A continuation statement is what?

An addition to a UCC-1 financing statement is called a continuation statement. Continuation statements prolong beyond the initial finance statement’s expiry date the lender’s claim on the borrower’s collateral. The UCC-1 financing statement is extended five years from the filing date when a lender submits a continuation statement.

The Final Word

Creditors may inform other creditors about a debtor’s assets used as collateral for a secured transaction by filing a UCC. Public notice of the creditor’s interest in the assets is provided via UCC liens filed with the relevant secretary of state offices.

Conclusion

• A UCC-Uniform Commercial Code-1 (UCC-1) declaration is a legal document that creditors file to publicly assert their right to seize assets from debtors who fail to pay debts.
• In an attempt to make a lender’s intention to take collateralized assets known to the public, UCC-1 notifications are usually published in local newspapers.
• Primarily, this paperwork assists lenders in getting court orders to confiscate assets from past-due borrowers, speeding up the collection process.
• The state in which the borrower’s business is incorporated is where this paperwork must be submitted.
• UCC-1 declarations may be of two kinds: liens tied to particular collateral or blanket liens.