What is a UCC Filing, and How Does it Affect You?
A Uniform Commercial Code (UCC) is a financing statement that must be filed by the creditor to claim official interest in the debtor’s collateral. Collateral can be any item used to conduct business that is owned by a debtor. A UCC-1 is the most common form used. This filing is public information for other creditors to review before entering into a financial agreement with the debtor. In most cases, the creditor wants to be first in line for interest over all other creditors.
A carrier or broker is considered a debtor who has to give creditors, the people they borrow money from, a stake in their business asset(s). In the case of factoring agreements, the creditor is the factoring company. If a carrier owes the factoring company money and fails to pay them back for any reason, such as going bankrupt, the factor can claim some of the carrier’s assets.
Types of UCCs
There could be several UCCs filed on a company, depending on how many loans the debtor already has with other creditors.
Two common types of filings are specific collateral and blanket.
In specific collateral filings the creditor has a stake in one or multiple of the debtor’s business assets, but not all of them. This filing is used for loans that pay for specific equipment, technology, or even a truck.For example, if a carrier borrows money to buy a truck but fails to make payments, their creditor can claim ownership of only that truck. A creditor can't claim other assets.
On the other hand, a creditor with a blanket filing has a stake in all of the debtor’s business assets. This filing is more common when the debtor doesn’t have concrete assets when taking out a traditional business loan.
If creditor A has a UCC filing completed on 1/1/18 and creditor B has a filing completed on 3/1/18, creditor A will have priority in taking over the debtor’s assets if the debtor defaults on their payment(s) or goes out of business.
Therefore, InstaPay and other factors expect a take in at least the accounts and accounts receivable of the debtor they are factoring for. In case a carrier goes bankrupt, InstaPay still wants to be able to collect on the carrier’s invoices. If a factor has filed a blanket filing before InstaPay, however, InstaPay will have an issue collecting on those invoices. It's important to determine which creditors may have a UCC filing on your company when applying for factoring. Any creditors that have filings on the same assets InstaPay is interested in will need to be addressed through a pay-off, buy-out, etc. before factoring begins.
Effects on Your Business
Filing a UCC has no negative effect on your business, reputation, or credit score! The UCC will actually protect your business when you operate across states. Each state has its own laws that determine business transactions and protections, but the UCC will standardize the laws that apply to your business no matter what state you make those transactions in.
So do not fear if a UCC filing on your company happens!
What’s Next for You?
Navigating UCCs may be difficult but factoring your invoices doesn’t have to be! You don’t need to worry about a UCC being filed because now you know that creditors will only take your assets if you default on payments or go bankrupt. Be sure to check out our other blogs where we talk about hidden fees and the difference between recourse and non-recourse factoring.
Apply today and get started on collecting same-day payments and achieve your trucking business goals!