When businesses secure financing through loans or factoring, one of the key terms that often comes up is a UCC filing. But what exactly is it, and why does it matter? UCC stands for the Uniform Commercial Code, a set of laws that govern commercial transactions in the United States. A UCC filing is a public notice made by a creditor, indicating that they have a legal interest, or lien, on a borrower’s assets. This filing is an essential part of securing a loan or financing agreement, as it protects the lender’s interests if the borrower defaults on the agreement.
How Does a UCC Filing Work?
A UCC filing is typically submitted to the Secretary of State’s office in the state where the borrower operates. The document, known as a UCC-1 Financing Statement, includes details about the borrower, the lender, and the specific assets that are being used as collateral. In the case of accounts receivable financing, the UCC filing would list receivables as the collateral, ensuring the lender’s claim to those receivables should the borrower be unable to meet their financial obligations.
The filing establishes the lender’s place in line among creditors. If the borrower were to default or face bankruptcy, the UCC filing allows the lender to collect on the collateral before unsecured creditors.
Types of UCC Filings
There are two main types of UCC filings:
- UCC-1 Filing (Financing Statement): This is the most common type of UCC filing and is used to establish a creditor’s rights to collateral.
- UCC-3 Filing (Amendment): This filing is used to amend, continue, or terminate an existing UCC-1 filing. For example, if the borrower pays off the loan, a UCC-3 termination can be filed to remove the lien from public record.
Why UCC Filings Matter in Factoring
For businesses utilizing factoring services, a UCC filing is a standard practice. It allows factoring companies like American Receivable to secure their interest in the receivables they are purchasing. This ensures that if a client defaults or if there are disputes with other creditors, American Receivable’s claim to the receivables is legally protected.
Not only does this protect the factoring company, but it also provides transparency and structure to the transaction. Other potential lenders can see that the receivables are already pledged as collateral, preventing overlapping claims on the same assets.
How Long Does a UCC Filing Last?
A UCC-1 filing remains active for five years from the date of filing. It can be renewed before expiration by filing a continuation statement, extending the lien for another five years. If the loan or factoring agreement is satisfied, the lender should file a UCC-3 termination statement to release the lien.
American Receivable and UCC Filings
At American Receivable, we prioritize transparency and security in all our factoring agreements. Our team handles UCC filings efficiently, ensuring that your business’s receivables are protected while you unlock the cash flow you need to grow. With over 45 years of experience, American Receivable knows how to safeguard your assets and help your business thrive.
Whether you are new to factoring or looking to understand the finer details of the financing process, our experts are here to guide you every step of the way. Contact us today to learn more about how American Receivable can provide secure and flexible financing solutions for your business.
