By: First Union
Understanding How A UCC Filing Affects Your Credit
Upon getting a commercial loan, you might notice a UCC filing statement on your credit report. If you are unfamiliar with this, then understandably, it can be confusing trying to figure out what exactly it means and what it's consequently doing on your credit report. Below we break down what this filing entails and how it impacts your credit.
The initials stand for the Uniform Commercial Code. It's been around since the 1950s and essentially focuses on small business dealings. The UCC was primarily developed to help streamline contracts and regulations during business transactions. This way too, when businesses interact across state lines or if a company from Nashville borrows from a lender in New York there is a uniform set of standards governing said transaction.
The UCC consists of 9 articles. The 9th article is the one that impacts credit reporting in such transactions. So basically, a UCC-1 Filing is a lien put on assets as part of a business loan. Such filings are public, thereby allowing creditors the ability to evaluate a company's creditworthiness and also allowing for entities to take action should a loan default.
Before receiving financing, the debtor must agree with the lender as to what assets are on the table in the case of a default. It's simply a means for the lender to recoup their losses should the debtor not be able to pay in the end. There are either blanket UCC liens or specific collateral liens. As the name suggests, with a blanket lien nearly all of the business's assets are involved. A specific collateral lien pertains to certain earmarked items.
What Does This Mean for a Business's Credit Score?
It will depend on the actions of your business. Let's say there is a UCC Filing on your credit report…As long as you make all required payments on time, there isn't a cause for concern. It doesn't affect the score, as it is such a common practice. It simply lets potential lenders know that yes, there is a lien in place already.
If you fail to pay the loan however, this could seriously impact your score. Not to mention, now those pledged assets can be taken per the loan agreement. Getting any future funding could be a highly difficult process.
At First Union Lending, we've worked with numerous companies and have helped them expand and thrive. Getting a business loan doesn't have to be complicated. We can walk you through it step by step. Call today!