The UCC – What It Is and What It Means to Lenders

The Uniform Commercial Code (UCC) was first published in 1952 and is a Uniform Act developed by the Uniform Law Commission (ULC).  The ULC is a non-profit organization created in 1892 with the sole purpose of developing uniform legislation to create consistency in critical areas of statutory law. 

The UCC was one of the most influencial and impactful of the more than 300 Uniform Acts developed. It standardized state laws and processes associated with commercial transactions extending beyond state lines. With the exception of Louisiana, all states have adopted the UCC in whole. 

The UCC includes nine articles regarding the sale or leasing of goods, letters of credit, negotiable instruments, fund transfers, bulk sales, bank deposits, warehouse receipts, bills of lading, investments, securities and secured transactions. 

For the lending community, the UCC laws provided for the protection of a creditor’s collateral interest.  More specifically, the UCC 1 Financial Statement protects the security interest of creditors.

Giving a public notice of interest in the property of the debtor serves as a lien on commercial property in a business loan. Essentially, a UCC filing allows a lender to claim collateral that a debtor pledges, in order to secure their financing.  It also gives gives notice that there is a right for the lender to take possession or sell assets to repay a debt.

Other interesting facts regarding the UCC 1 Filing:

• Must be filed with the Secretary of State office (SOS).
• Creditor must seek permission from the debtor to file.  Lack of permission does not invalidate a properly filled UCC 1.
• Can be filed as a blanket lien or filed for specific assets.
• Is valid for five years
• Can be extended by a Continuation Statement, but this must be filed six months prior to the termination date.  There is no limit on the number of extensions.
• Multiple UCC 1 statements can be filed. In the case of a bankruptcy, debt to the creditor in first position must be satisfied before the second position lien holder can receive any collateral.
• When a UCC 1 is terminated, the second position holder moves to first position unless the UCC 1 first position is assigned to another.

As a lender, filing a UCC lien is a way of protecting your investment in the unfortunate event of a debtor filing for bankruptcy. With a UCC filing, if your debtor declares bankruptcy, you’ll be given the opportunity to claim the assets that are covered under that lien.

For more information, please don’t hesitate to contact CapitalPlus. We’re happy to answer any questions you may have about UCC 1 filings.