If you are seeking funding for your small business, you should be familiar with UCC filings. The UCC or Uniform Commercial Code is a set of rules that govern financial transactions in the United States. The purpose of the UCC is to create a consistent set of rules that apply throughout the nation.
What You Need to Know About UCC Filings as a Business Owner
What is a UCC Filing?
If you’re a new business owner or don’t have much experience with business financing, you may not know about the UCC and its filings. UCC forms are not filed by businesses but by lenders. These filings are, however, quite important and you should understand what they are.
The UCC-1 financing statement, also known as UCC liens, is the most common type of filing that typically affects small businesses. This is a statement that a creditor will file when providing financing that involves collateral. The UCC-1 gives notice that the creditor has a lien or interest in any collateral the borrower has put up. Notices about these filings are often published in local newspapers.
The Reason for UCC Filings
One of the main purposes of a UCC filing is so that there’s a public record of secured loans or financing that involve collateral. Suppose, for example, that you take out a loan with Lender A. You put up your home as collateral. After Lender A files a UCC-1, any other lender can look up this information and see that your home has been put up as collateral. This way, if you try to take out another loan with Lender B, you can’t put up the same home as collateral, unless Lender B is willing to take a second position.
Most UCC-1 liens specify certain assets or possessions that have been used as collateral. However, there are also blanket liens, in which the lender has rights to all business assets. UCC filings are valid for five years. They can be terminated sooner or extended based on the mutual financing agreement made between lender and borrower.
What You Need to Know About UCC Filings
Small business owners should be aware of any active UCC filings as these can affect your ability to obtain new business financing. Before a lender approves a business for financing, they will do a lien search, and if your business has an active UCC-1 filed against it, your ability to obtain new financing may be affected. It will depend on the collateral that each lender has interest in. Before allowing a lender to file a UCC-1 financing statement, you should know what assets will be covered and the conditions of termination.
UCC Filings in Factoring
Factoring agreements will require a UCC filing, but assets covered under the UCC filing will differ by factoring company. Generally, Riviera Finance will only file a UCC on accounts receivable, leaving equipment and other assets unencumbered. So our clients have the ability to obtain other forms of financing such as equipment financing, if necessary. Invoice factoring is a way to strengthen your business credit as well as cash flow. When you factor your invoices, it doesn’t impact your credit score and you don’t take on additional debt for your business. When you collect immediate cash for your invoices, you can also pay off any existing debts faster.
To learn more about invoice factoring, contact Riviera Finance.