Visit Our Learning Center - Understand The Process Before Borrowing

UCC or No UCC

A UCC is Often Required

When borrowing money, leasing equipment, or obtaining funding for just about any reason, the lender will usually mention "UCC" during the conversation. The abbreviation UCC (also known as a UCC-1) stands "Uniform Commercial Code 1" and it's a statement that gives notice that a creditor has a security interest in some or all of your company property (depending on what they claim on the UCC) in return for the funds they lend you. This is common and happens every day because you are borrowing money and the lender needs to let others (lenders/creditors/etc) know they have first dibs in your property should a default arise. For example, if you lease a $50,000 piece of machinery there will usually be a UCC-1 filed because you borrowed money to lease the equipment. It's always wise to check and see if you have any existing UCC's filed on your company.

Dangerous Alternatives to a UCC

If you are truly against having a UCC-1 filed on your company, there may be a chance the lender will give you an option, known as a COJ. It's the most dangerous thing you can do to your company and to yourself and it is unwise in every shape or form. It is called an "Affidavit of Confession of Judgement" which basically gives the lender an immediate judgement against you (personally) if you default. This can be EXTREMELY dangerous and a consultation with an attorney is highly recommended if you consider this. If you default they can immediately receive a judgement from the court which then allows them to drain your bank accounts, take your house, cars, all your business property etc. In fact, some lenders consider a default after missing just ONE (1) payment. Just one, and your life can be totally ruined by the COJ. Do you really want to take that chance? Plus, they ding you for attorney fees of 33 1/3% and add that to your unpaid balance. In some extreme cases there are some shady lenders that can add $1,000 PER DAY to your balance as a penalty. In other words your life can be completely destroyed if you miss a few payments. Always talk with an attorney if you even have a thought of signing any COJ paperwork. Again, your entire life can be destroyed if you sign a COJ and default. If you have to ask "why would any company be so mean and do that?" Some of those type of lenders just don't have any soul or morals and they don't care if they bankrupt you or make you live under a bridge - as long as they get paid, that's all they care.

After You Repay the Debt

This is important because some lenders will forget to file for a UCC removal (a UCC-3 statement) which can make it hard for you to get another round of financing from another vendor. Be sure you make a note somewhere in your records to make sure the UCC is removed after you make payment in full. Just contact your lender and have them give you a copy of the UCC-3 they filed which would clear the UCC-1 filing. Don't skip this step because there are many companies that have very old UCC-1's still filed because their lender either forgot to file the UCC-3 or filed it incorrectly and it did not clear the original filing. It's wise to always check your company credit to make sure the UCC's on file are accurate.

Contact a Business Attorney

A business attorney is one of the wisest investments any business owner can make. They can save you from making a tremendous mistake or can help you fix a business matter that can grow out of control. We cannot stress enough the importance of hiring a business attorney when conducting any kind of financial transaction. A Funding Place offers you no legal advice on anything, period, so if you have questions please seek a professional business attorney who can steer you in the right direction.