A UCC lien allows a lender to take specific business assets if you don’t repay a loan. But what does that mean for you and your company? While UCC filings are common for secured loans and don’t usually affect your daily business, they do, however, have significant implications for the company resources, such as equipment, machinery, real estate, accounts, or inventory.
Affecting financing
Lenders check business credit reports just like personal ones. While a UCC lien doesn’t directly lower your credit score, lenders can see it on your report for the past five years. This history might make them hesitant to lend, especially if they see many loans or late payments.
UCC filings also restrict how you can use your assets for future loans. Lenders prefer being the primary lender for an asset. If you already have a UCC filing on some equipment, another lender might be unwilling to give you a loan using that same equipment as collateral. They would be in a “second position” and have less security.
Losing your business assets
The greatest danger with a UCC lien is the potential loss of your business assets. If you fail to repay the loan as agreed, the lender has the right to take possession of the assets listed in the UCC filing. This is called “repossession.”
Even with existing UCC liens, you can still seek additional financing. You can explore using different collateral, request your current lender to release some assets, or find a lender willing to take a secondary position. However, these options often come with challenges.
Navigating UCC filings and their implications can be complex. Consulting with an attorney with experience in UCC filings is advisable. They can help you understand your options when dealing with UCC liens, ensuring you make informed decisions that protect your assets and business.
Understanding UCC liens is crucial for managing your business assets wisely. Keep track of any UCC filings against your business and review your credit reports regularly. Consider how existing liens might affect your options if you’re considering getting a new loan. Don’t hesitate to talk to your lenders about your needs and goals.