What Is A UCC1 Financing Statement?

As 2021 comes to a close, business owners find themselves looking over several documents to plan ahead for the new year. In many cases, one of the first things they investigate is their business credit report.

As companies look over their credit reports, they may notice the term UCC1 on one or more of their assets. If you’re unfamiliar with this term, it can cause significant confusion.

If you have a UCC1 financing statement on your records, it can have a significant impact on your credit. So, in this guide, we’ll explore what a UCC1 is and how it can affect you. Let’s get started!

What Is a UCC1 Financing Statement?

If you have a UCC1 filing on your report, it means that a lender has taken a lien on an asset to secure a loan. This way, if the debtor defaults on the loan, the creditor can seize the debtor’s personal property as collateral.

As such, a UCC1 filing statement is essentially a way for lenders to ensure they get what you owe them. These statements get their name from the Uniform Commercial Code (UCC).

The UCC is a code that standardizes market transaction processes across the states. Most states have them in similar forms. So, if a company enters a commercial contract in North Carolina, parties can enforce it in similar ways as a contract in Wyoming.

A UCC1 invokes the first article of this code. However, different UCC1 types exist in the market. We’ll explore these different versions in the sections below.

UCC Liens Against Specific Collateral

There are two types of UCC1 liens. The first targets specific collateral, which gives creditors an interest in clearly defined assets held by the borrower.

Usually, lenders want specific collateral if they’re loaning money for specific assets. For example, if an organization purchases a company car with this loan, that car would be the asset held by the lender.

Several types of items fall under the specific collateral umbrella. Three common categories are vehicles, equipment, or inventory.

UCC Blanket Liens

Blanket liens function as the opposite of liens against specific collateral. A lien against specific collateral gives lenders leverage against an asset or group of assets.

Blanket liens, however, do the opposite. They provide the lender an interest in all of the borrower’s business assets.

As such, if the borrower defaults, the lender can seize as many business assets as they want. The only provision is that the total value of the goods must be equal to or lower than the value of the debtor’s debt.

This type of lien gives the creditor significant protection when lending money. In return, borrowers receive much less security.

Learn How to Handle Your UCC1

If you see a UCC1 filing statement on your business credit report, this could have negative effects on you. First, figure out what type of UCC1 you have.

From there, see what you can do to pay the lender back the money they’ve loaned. If you’re not sure how to do that, check out our other content today! We offer more tips on how to deal with tough financial situations like this.

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