What is a UCC filing?

Key takeaways

• UCC filings allow a lender to seize assets from a borrower if the borrower has pledged them as collateral for a loan
• UCC liens have no impact on your business credit score, but they will show up on your business credit report
• You need to pay off your loan and your lender needs to file a UCC-3 form to remove your UCC lien

A Universal Commercial Code (UCC) filing is a document that lenders use to secure their business loans through access to borrower assets. This establishes the lender’s authority to seize property from the borrower should they fail to pay off the loan.

UCC filings are public and allow other potential creditors to see where a borrower’s collateral has already been leveraged. Creditors may file a blanket UCC lien, or they might name specific assets that were used as collateral on the loan.

How do UCC filings work?

UCC filings are a uniform way to record business liens using a document called the UCC-1 financing statement. They are governed by the Uniform Commercial Code, established in 1952, which provides a standardized set of laws related to commercial transactions across the country. This uniformity allows creditors to submit a UCC filing for a borrower in any state, even if the creditor is located elsewhere.

Most creditors make a UCC filing when the loan originates. This allows the lender to have a higher priority on assets than future lenders if the borrower stops paying their bills. For example, if Bank A extends credit to a company in 2024 and Bank B extends credit to the same company in 2026, Bank A may not be granted first rights to assets if they failed to file a UCC-1 form before Bank B.

A UCC filing is submitted to the Secretary of State in the state where the borrower is located, regardless of where the creditor is. The lien filing process may vary by state. Some places require a paper filing, while other states have moved to a digital process.

What is the impact of a UCC filing on a business?

If you file for a loan from a bank as a business, the UCC loan filing itself won’t hurt your company. It will only affect you in a negative way if you default on the loan and your creditor takes action on the lien.

On the flip side, your business only needs to file a UCC-1 if you are extending certain types of credit to your customers. If you simply accept credit cards, you won’t need to worry about being on the creditor side of this process.

However, if you offer loans or leases that use business assets as collateral, a UCC filing will become necessary. Submitting a UCC filing secures your place among other creditors in the event that your customer goes bankrupt or stops paying. It’s a way to protect your business’s way to recoup your loss.

When are UCC Liens used?

When a creditor files a UCC-1 financing statement, a lien is created against the named collateral. A UCC lien can be filed against a variety of assets. These may include:

• Real estate
• Real estate fixtures
• Equipment
• Inventory
• Vehicles
• Accounts receivable
• Investment securities

Types of UCC Filings 

There are two types of UCC filings. The kind of filing that a creditor chooses will often depend on the assets that are available to secure the loan or lease.

UCC liens against specific collaterals

A lien against a named asset is also called a purchase money security interest (PMSI). This is the type of lien you have against a vehicle, real estate or equipment. Your creditor extends credit for you to purchase a specific asset, and they will take it back if you can’t pay. A PMSI lien may also apply to a small business loan when you offer up an asset that you already own as collateral. The asset you put up as collateral can’t be something you intend to sell.

Blanket UCC filings

This type of lien is against all of your assets instead of just one particular item. If you go into default on your loan, a creditor could go after any of your equipment, inventory, or other valuables until they are paid back for what they’re owed. This type of lien may be more common if you sell services, such as a yoga studio that wouldn’t have a lot of expensive equipment worth leveraging.

How UCC filings affect credit

Because a UCC filing is standard practice, it doesn’t lower your business credit score or automatically change your credit worthiness. However, it is a public notice and another creditor may look at how many of your assets are already used as collateral for other loans. This could make it more challenging to get another loan in the future.

You can improve your chances of accessing more credit in the future by:

• Keeping your existing loan in good standing
• Waiting until you have a new piece of collateral before you request more funding
• Maintaining a low credit utilization rate

How to remove a UCC lien

You must pay off your loan to have the lien removed. A UCC-1 financing statement is valid for five years, after which the creditor will likely file a UCC-3 statement to continue the lien if your loan is not paid off yet. Once your debt is paid, the creditor can also use the UCC-3 statement to terminate the lien and release their interest.

If your lender doesn’t release the lien after the loan is paid off, it will still appear on your credit report. At this point, you can dispute the entry as inaccurate with the credit bureaus. Be prepared to provide proof that the loan has been paid in full. You may also be able to get help from your local Secretary of State.

How to get a UCC filing

It’s fairly easy to file a new UCC-1 financing statement as a creditor or see which UCC filings have been placed on your own business. No matter where you live, the same national UCC forms are used.

• Visit your state’s UCC filing page: Go to the National Association of Secretaries of State website and choose your state or territory from the drop-down menu.
• Find the appropriate form: To place a UCC filing against a debtor, you need the UCC-1 financing statement form. If you want to see a copy of the UCC liens against your company, you want to file a UCC-11 search request.
• Submit your filing: Submission protocols vary by state. For instance, Arizona requires you to file by mail, while California allows you to file online.

Frequently Asked Questions 

What does UCC stand for?

UCC stands for Uniform Commercial Code. This set of laws governs commercial transactions in all 50 states and Washington, D.C. Most commonly, the UCC is used as a place to publicly file liens against businesses who have taken out debt from a creditor.

Can UCC liens be negotiated with lenders?

UCC liens are automatic when you take out debt from a lender. However, you may be able to negotiate the terms in the event that you fall behind on your payments. For instance, you could ask the lender to refinance the debt and lower your payment instead of acting on the lien to seize your assets.

What is the difference between a UCC lien on specific collateral and a blanket lien?

UCC liens on specific property name a particular asset in the filing, such as a vehicle or piece of expensive machinery. Blanket liens are against all of a company’s assets up to the amount it would take to satisfy the debt.