UCC Financing Statement (UCC-1)

The public notice a lender files to stake its claim on a borrower's equipment, inventory, receivables or other business property - the filing that decides who gets paid first when a business fails.

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What it means

When a business borrows against its own property - equipment, inventory, accounts receivable, vehicles used in the business - the lender takes a security interest: a right to seize and sell that property if the loan is not repaid. A UCC financing statement, commonly called a UCC-1, is the short public notice the lender files with the state, usually with the secretary of state, to announce that interest to the world. Filing it is what ordinarily "perfects" the interest, which is the legal term for making it good against other creditors and against a bankruptcy trustee.

Priority is the reason the filing matters. As a general rule the first lender to file wins over later ones as to the same collateral, whether or not the later lender knew of the first. A business that has granted a blanket lien on "all assets" to one lender will find that a second lender either will not lend or will insist on a subordination agreement, and a buyer of the business will search the filings before paying anything. Conversely, a lender who never filed, or filed under the wrong legal name, may be treated as unsecured when it matters most.

A financing statement is a notice, not the loan agreement: it identifies the debtor, the secured party and the collateral in general terms, and says nothing about the amount owed. It lapses after a fixed period unless a continuation statement is filed, and once the debt is repaid the debtor is entitled to have it terminated, which is worth insisting on - a stale filing left of record reads as a live lien to the next lender who searches.

Where this comes from

When people hire a lawyer for this

Two situations justify advice: before granting a blanket lien, since an "all assets" filing by a first lender can foreclose every later borrowing option; and when buying a business or a significant piece of equipment, where a UCC search and a plan for clearing the filings it turns up belong in the purchase agreement. After a default the questions are about priority and process, and by then the filings have already decided most of the answer.

Worried about the cost? A lawyer can be hired for one part of a case only (limited-scope representation), may be paid from what a claim recovers (contingency fee), or may be free through a pro bono programme or legal aid; a court can also waive its own filing fees.

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Related terms

Other entries in the same area of law, each written from the same primary sources.

• Asset Purchase vs Stock PurchaseThe two ways to buy a business - buying what it owns or buying the entity that owns it - and why the choice decides which liabilities come with it, which contracts transfer, and how the price is taxed.
• Breach of ContractA failure to do what a binding agreement required - and the question a court actually asks is not whether someone broke a promise but what the loss was and whether it could have been avoided.
• Buy-Sell AgreementThe contract between co-owners of a business that says what happens to an owner's share when they die, leave, divorce or go bankrupt - who must or may buy it, at what price, and with what money.
• DBA (Fictitious Business Name)A registered trade name under which a person or company does business - which tells the public who is behind the name and does nothing else.
• Fiduciary Duties and the Business Judgment RuleThe duties of care and loyalty that directors, officers, managers and controlling owners owe the business, the rule that protects honest decisions that turned out badly, and the derivative suit that enforces them.
• Franchise Disclosure Document (FDD)The document a franchisor must give a prospective franchisee before any contract is signed or money changes hands - what the federal rule requires it to contain, what it does not promise, and the state laws that add registration and relationship rights.
• General and Limited PartnershipsA general partnership can be formed by conduct with no paperwork and makes every partner personally liable; a limited partnership requires a filing and shields the partners who do not manage. What each is, and the LLP and LLLP variants.
• Indemnification and Hold Harmless ClausesThe contract provision under which one party agrees to cover another's losses and defend it against claims - what it usually reaches, the state laws that void some of it, and why insurance is the other half of the promise.
• Independent Contractor vs EmployeeTwo legal categories of worker with very different consequences for taxes, overtime and liability - and a label in a contract does not settle which one applies.
• Letter of Intent (LOI) and Term SheetThe preliminary document that sets out the main terms of a deal before the contract is drafted - which parts of it are usually binding, which are not, and how a "non-binding" letter still creates obligations.
• Limited Liability Company (LLC)A business form that shields its owners from most business debts while staying simpler to run than a corporation.
• Non-Compete AgreementA promise not to work for a competitor or start a competing business for a period after a relationship ends - enforceable in some states, sharply limited in others, and void in a few.
• Non-Disclosure Agreement (NDA)A contract restricting what one or both sides may do with information the other shares - and, unlike trade secret law, it binds only the person who signed it.
• Operating AgreementThe private contract among an LLC's owners that decides who controls the company, how money is split, and what happens when someone leaves - or the state's default rules decide it for them.
• Personal GuaranteeA promise by an individual - usually a business owner - to pay a company's debt personally if the company does not, which puts the owner's own assets behind the loan or lease regardless of the entity's liability shield.
• Piercing the Corporate VeilThe exception under which a court holds an owner personally liable for a company's debts, despite the limited liability the company normally provides.
• Registered AgentThe person or company a business entity must designate to receive lawsuits and official notices on its behalf - and the address at which a default judgment can quietly begin.
• S Corporation ElectionA tax election, not a kind of company - what electing S status does to how a corporation or LLC is taxed, who is eligible to make it, and how it is lost.

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