If you have viewed your business credit report, you may have noticed a UCC filing statement, and it could be harming your business credit score. Business owners should understand what UCC filings are, as not doing so can cause problems down the line when applying for credit, such as an SBA loan. So can you get an SBA loan with a UCC lien on your report? The honest answer is that it depends on the lien and on what you do about it. But if a UCC filing is on your business credit report, it could be hurting your chances of getting approved. Still, if you know what a UCC filing is, you may be able to keep one from jeopardizing your loan approval.
UCC Filings
A UCC filing is a document a creditor files to secure its interest in personal property or assets of a debtor. With the filing, the creditor is able to take possession of certain assets to recover its debt. When the creditor checks your business credit report, it can see which of your assets have a UCC filing attached. UCC filings come from the Uniform Commercial Code, the legal framework that covers liens. It was put in place to harmonize and create a more uniform set of rules for doing business across many states, and it is geared toward small businesses and entrepreneurial transactions.
When lenders lend money to businesses, they file a UCC so that their interests are protected. The lender and borrower have to agree on what assets they can take before the contract is signed. Lenders have to be able to secure collateral in the event that the borrower defaults.
Lenders can put two types of UCC liens on businesses: specific collateral liens and blanket liens. A specific collateral lien can be placed against one or more specific assets you own. Commonly used with equipment and inventory loans, the collateral is typically what you used the loan money to purchase. For example, if you purchase a new forklift, the forklift will be the collateral.
A blanket lien means the lender has a claim to most - and sometimes all - of the business’s assets. You’ll often see them with bank loans, SBA loans and short-term loans. A blanket lien might cover real estate, office equipment, letters of credit, vehicles, inventory, accounts receivable and accounts payable. That matters if you are shopping for an SBA loan, since the loan you want may come with a blanket lien of its own.
Negatively Impact Your Overall Credit
If a UCC filing appears on your business credit report, it may signal to lenders that your business is financially unstable. Even if you managed to pay all of your debts off completely, the UCC can remain on your credit report for years. Having a UCC filing on your report can negatively impact your overall credit, and even your ability to secure financing for your business.
What happens if you default? This depends on the state in which you live. A creditor that has a UCC lien against your business may be able to take money from your bank account, your car or personal property, and any assets in the UCC-1 filing.
If you’re already late on payments and scared about defaulting, we at Delancey Street can help. We’re a business debt settlement company. Our advisors can negotiate with your funders and lenders for less than you owe. We don’t offer another loan to you. We’re not a law firm, but when bankruptcy is the right move for a business owner, we tell them that and send them to an independent bankruptcy lawyer.
File a UCC-3 Financing Statement to Release the Lien
Once your loan is repaid, the lender will have to file a UCC-3 financing statement to release the lien. Many lenders fail to file the UCC-3 even after you’ve paid off your loan in full, causing problems when you try to get financing down the road. Please notify the lender and insist that they file a UCC-3 termination form to remove the lien right away. If it’s still on your report, you can petition your secretary of state’s office to have it removed or dispute the error with the credit reporting agencies. If the lien on your report belongs to a loan you already paid off, this is the step to take before you apply.
Since UCC liens are a matter of public record, lenders can use them to identify potential customers who are already familiar with their products, and then send them offers for financing. You’ll want to watch the status of your own UCC filings against your business; check it on your business credit report or by doing a UCC lien search.
Before you go in for an SBA loan, take a look at your business credit report. Do you see any UCC filings on it? If it’s from a loan you’ve already repaid, have it terminated. If the debt behind it is a debt you can’t pay, don’t keep it secret: give us a call. Your first consultation with Delancey Street is free and confidential.
