What is a UCC Financing Statement?

Daphne Mallory
Daphne Mallory
Man climbing a rope
Man climbing a rope

A Uniform Commercial Code (UCC) financing statement is a legal document that a creditor uses to provide notice of its lien against the personal property owned by the debtor. The statement is often required in the loan process if personal property is offered as collateral to obtain the loan. The creditor files the statement with the Secretary of State or the county where the property that is collateralized is located. It gives the public notice of the relationship between the creditor and the debtor in addition to the lien placed on the property. The initial filing can be amended using form UCC-3, which shows changes to the conditions of the loan agreement or changes to the personal information of the creditor or the debtor.

The Uniform Commercial Code, which is the source of the financing statement, governs secured transactions between creditors and debtors, among other things. Article 9, which has been adopted in most jurisdictions, pertains to secured transactions and financing statements, and it designates the Secretary of State as the custodian of the filings. The public can often search records to find out whether a statement has been filed against a business entity or individual. Creditors search records to see whether a lien has already been placed on the collateral that the debtor wants to use for the secured loan. A creditor will most likely deny the loan application if a UCC financing statement is already filed on the same collateral.

The purpose of the UCC financing statement is to protect the interest of the creditor. It makes it difficult for the debtor to sell or otherwise dispose of the property when there is a lien on it. The debtor often has to pay off the debt balance before he can get rid of the lien. For example, a business owner who applies for a secured loan and offers business equipment as collateral can often expect that the creditor will file a UCC financing statement with the Secretary of State. The statement acts as a lien until the business owner pays off all the debts.

Filing a UCC financing statement does not guarantee a creditor’s interest in the debtor’s property. Article 9 of the UCC governs who has the first rights to the debtor’s property, and it lists the various factors that must be taken into account. The creditor’s security interest often has to be perfected in order to have a higher claim or first rights to the collateral.

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