UCC Financing Statement Guide for Small Business Owners
Learn what a UCC Financing Statement means for your small business, how it affects your ability to secure loans, and what you need to know as a business owner seeking capital.
Introduction
A UCC Financing Statement is a legal form that creditors file to give public notice that they have an interest in the personal property of a debtor (in this case, your business). When you secure a business loan using your business assets as collateral, your lender will typically file a UCC Financing Statement to establish their legal claim to those assets if you default on the loan. Understanding UCC filings is crucial for small business owners, especially when seeking financing for growth or startup capital. This guide will help you navigate what these filings mean for your business, your rights, and your ability to secure additional funding.
Key Things to Know
- 1
A UCC Financing Statement creates a public record of debt secured by your business assets, which can affect your ability to obtain additional financing.
- 2
Blanket liens cover all business assets and can significantly restrict your financial flexibility, so try to negotiate for specific collateral when possible.
- 3
UCC filings expire after five years but can be renewed by the lender. Make sure terminated loans are properly removed from UCC records.
- 4
Lenders establish priority based on the order of UCC filings, with the first to file having first claim to the collateral if you default.
- 5
You can request subordination agreements from existing lenders to help secure additional financing when needed for business growth.
- 6
Regular monitoring of UCC filings against your business helps prevent errors that could complicate future financing efforts.
- 7
Some alternative lenders and community development financial institutions may offer more flexible terms regarding UCC filings for small businesses, particularly MWBEs.
Key Decisions
UCC Financing Statement Requirements
The exact legal name of the debtor as it appears on formation documents. For registered organizations, this must match the name on file with the Secretary of State. For individuals, use the name on a driver's license or other government-issued ID.
The complete mailing address of the debtor, including street address, city, state, and zip code.
Specify the type of organization (corporation, LLC, partnership, etc.) if the debtor is a registered entity.
The state or country where the debtor entity is organized if the debtor is a registered organization.
The organizational identification number assigned by the jurisdiction of organization (if applicable).
Information for any additional debtors, including their exact legal names and addresses. Each additional debtor requires the same level of detail as the primary debtor.
Wisconsin Requirements for UCC Financing Statement
A financing statement must include the name of the debtor, the name of the secured party, and an indication of the collateral covered. The statement must be filed with the Wisconsin Department of Financial Institutions.
The financing statement must provide the correct legal name of the debtor. For registered organizations, this means the name on the public organic record. For individuals, this means the name on their driver's license or state ID.
A financing statement is sufficient even if it contains minor errors or omissions, unless the errors or omissions make the financing statement seriously misleading.
A filed financing statement is effective for 5 years after the date of filing. The effectiveness of a filed financing statement lapses on the expiration of the 5-year period unless a continuation statement is filed.
A continuation statement may be filed only within 6 months before the expiration of the 5-year period. Upon timely filing of a continuation statement, the effectiveness of the initial financing statement continues for a period of 5 years.
A secured party may add or delete collateral covered by, continue or terminate the effectiveness of, or otherwise amend the information provided in, a financing statement by filing an amendment.
Within 20 days after a secured party receives an authenticated demand from a debtor, the secured party shall file a termination statement if the financing statement covers consumer goods and there is no obligation secured by the collateral.
The proper office to file a financing statement in Wisconsin is the Department of Financial Institutions, except for as-extracted collateral, timber to be cut, or fixtures, which require filing with the register of deeds in the county where a mortgage would be filed.
The Wisconsin Department of Financial Institutions charges specific fees for filing, continuing, or amending UCC financing statements. These fees must be paid at the time of filing.
Conflicting perfected security interests rank according to priority in time of filing or perfection. Priority dates from the earlier of the time a filing covering the collateral is first made or the security interest is first perfected.
A purchase-money security interest in goods has priority over a conflicting security interest in the same goods if the purchase-money security interest is perfected when the debtor receives possession of the collateral or within 20 days thereafter.
The financing statement must conform to the format prescribed by the filing office. Wisconsin accepts the national UCC forms approved by the International Association of Commercial Administrators.
A description of collateral is sufficient if it reasonably identifies what is described. Examples include specific listing, category, type of collateral defined in the UCC, quantity, or any other method if the identity of the collateral is objectively determinable.
A security interest is perfected when it has attached and all requirements for perfection under the UCC have been satisfied. A security interest attaches when it becomes enforceable against the debtor with respect to the collateral.
A security interest attaches to collateral when it becomes enforceable against the debtor, which generally requires value to be given, the debtor to have rights in the collateral, and either an authenticated security agreement or possession/control of the collateral by the secured party.
A secured party must use reasonable care in the custody and preservation of collateral in the secured party's possession. The secured party may use or operate the collateral for the purpose of preserving it or its value.
After default, a secured party may take possession of the collateral, dispose of it, accept it in full or partial satisfaction of the obligation, or collect from account debtors. The secured party must proceed in a commercially reasonable manner.
A security interest attaches to any identifiable proceeds of collateral. Proceeds must be identifiable cash proceeds or be received within 20 days after the disposition of the original collateral.
Wisconsin accepts electronic filing of UCC financing statements through the Department of Financial Institutions' online filing system, which must comply with technical standards for electronic transmission.
A debtor may file an information statement if they believe that a financing statement is inaccurate or wrongfully filed. This does not affect the effectiveness of the original financing statement.
Frequently Asked Questions
A UCC Financing Statement (also called a UCC-1) is a legal document filed by creditors to publicly announce their interest in the assets of a debtor. It's named after the Uniform Commercial Code, which standardizes business laws across states. When you use business assets as collateral for a loan, your lender files this form with your state's Secretary of State office. The filing establishes the lender's security interest in your business property and determines priority among creditors if multiple lenders have claims against the same assets.
A UCC filing can affect your business in several ways: 1) It encumbers the assets listed as collateral, meaning you cannot sell them without the lender's permission; 2) It may limit your ability to obtain additional financing since those assets are already pledged; 3) It establishes a public record that other potential lenders can see when evaluating your creditworthiness; 4) If you default on the loan, it gives the lender legal rights to seize the collateral assets. However, UCC filings are standard practice in business lending and don't necessarily reflect negatively on your business.
While UCC filings work the same way for all businesses, minority and women business owners (MWBEs) should be aware of certain considerations: 1) Some MWBE-focused lenders may offer more flexible terms regarding collateral requirements; 2) Certain MWBE loan programs through the SBA or community development financial institutions may have different UCC filing requirements; 3) Understanding UCC filings is particularly important if you're using alternative financing methods that are common among underserved business communities. Consider consulting with financial advisors who specialize in working with MWBEs to understand how UCC filings might impact your specific situation.
A UCC Financing Statement can cover virtually any type of business personal property, including: equipment, inventory, accounts receivable, furniture, vehicles, intellectual property, and even future assets your business may acquire. The filing can be specific (listing particular items) or blanket (covering all business assets). For small business owners, it's crucial to understand exactly what assets are being used as collateral and how that might affect your operations if you need to sell or replace those assets.
A UCC Financing Statement typically remains in effect for five years from the date of filing. After that, it automatically lapses unless the lender files a continuation statement before the expiration date. If you pay off the loan before the five-year period ends, the lender should file a UCC-3 Termination Statement to remove their claim on your assets. As a business owner, it's important to verify that terminated loans are properly removed from UCC records, as outstanding UCC filings can complicate future financing efforts.
Yes, you can still obtain additional financing with an existing UCC filing, but it may be more challenging. Your options include: 1) Seeking loans using assets not covered by the existing UCC filing; 2) Negotiating with your current lender to subordinate their position (allowing another lender to take first position on certain assets); 3) Finding lenders willing to take a secondary position; 4) Using alternative financing methods that don't require collateral, such as revenue-based financing. For business owners seeking expansion capital, it's important to maintain clear records of your existing obligations and available unencumbered assets.
If you discover errors on a UCC filing against your business, take these steps: 1) Contact the lender immediately and request they file a UCC-3 Amendment to correct the information; 2) If the lender is unresponsive, you may need to file a correction statement with your state's filing office explaining the error; 3) In cases where a UCC filing should have been terminated but wasn't, send a written demand to the secured party requiring them to file a termination statement; 4) If necessary, consult with a business attorney who specializes in secured transactions. Monitoring UCC filings against your business regularly is a good practice for all business owners.
As a first-time business owner, consider these points before agreeing to a UCC filing: 1) Understand exactly which assets are being used as collateral; 2) Be wary of blanket liens that cover all business assets, as they can severely limit future borrowing options; 3) Negotiate for specific collateral when possible rather than all-encompassing liens; 4) Ensure the loan agreement includes clear terms for removing the UCC filing once the loan is paid; 5) Consider how the encumbered assets might affect your business operations and growth plans; 6) Compare loan offers from multiple lenders, as UCC requirements can vary significantly.