What a New UCC Filing Means for Your Business: 5 Things to Check

If you have just found a UCC-1 financing statement filed against your business by a merchant cash advance funder, take a breath. A UCC filing is a public notice by a creditor that it has or may have an interest in the property of a debtor, referred to as the debtor’s collateral. It simply allows anyone searching for a UCC filing against the business to know that there is a creditor with a security interest in your business. A UCC filing in and of itself is not evidence that the creditor is entitled to seize any of your assets. The five things to check on your financing statement are laid out below. They are not in order of importance but rather in the order you should check.

What Kind of Legal Document

Before you even look at the rest of the UCC filing, you need to know what kind of legal document you are actually looking at. Is it just a notice that a creditor is claiming an interest in your business property? Or is the creditor doing more than merely claiming an interest in your business property. Is it demanding money? Ask any customers directed to pay the funder to give you a copy of the notice. If you receive court papers, keep all the documents and seek prompt legal review of any deadlines. Banks can freeze accounts for a number of reasons, so if your account is frozen, don’t assume it is because of the funder’s UCC-1 filing. Missing a legal deadline can be disastrous, and the bank is not your law firm.

When a notice about payment gets sent to your customers or processor, make sure to keep the full notice, any attachments, date received, your invoices, and your original contract. Do not tell customers to ignore it or redirect payments before getting advice. If you don’t track all the details now, it may cost you later.

The Real Terms Are in the Contract

You should compare the financing statement to the contract you signed. While the financing statement usually lists only your name, the funder’s name and a line about collateral, the real terms are in the contract, not the filing. When checking whether you authorized the filing, “authorize” doesn’t mean you asked for the filing or gave express permission for the filing. Instead, did you ever sign an agreement with the funder allowing for the filing, and does the financing statement accurately identify you and the funder? A clause in the paperwork authorizing the filing can give the funder the legal right to make the filing. Look over the papers you signed to see what you actually authorized, and don’t assume a filing means you defaulted. The funder could have filed long before any default. In fact, a funder can file before the initial advance ever happens. Just because something is on a UCC filing, doesn’t mean that is what you agreed to.

Next, you need to know what assets are covered. This can be complex depending on the wording. A broad description can mean the funder has a security interest in all of your business assets. A UCC filing that says it covers all assets of the business is called a “blanket UCC-1”. A narrower description can limit the amount of property the creditor has a security interest in, but this depends on the words used. A UCC-1 filing against the business isn’t the same thing as a lien against you personally or against your home. It’s a good idea to provide the funder with a list of your business assets you think the contract allows them to file on, which lets you have input on the scope of the funder’s claims. The funder generally has 14 days to respond to requests for approvals or corrections. Only one request is free in any six month period, and the funder can charge up to $25 for each additional request. The right to challenge a UCC-1 filing does not erase your personal guarantee, and the claim on the personal guarantee must be reviewed separately.

Even if all the entries on the UCC filing are correct, that’s not the whole story. You also need to check the record. Whether you are doing the search yourself or hiring someone else, the search has to be run with the exact legal name of the business. That name may not be the one you know it by, such as a trade name. If it is an LLC or corporation, it is normally searched by the name on file in the state where it was formed. Also, don’t just look at the most recent document. Save the history of amendments, assignments, continuations, and terminations, so you get the whole picture. Look at any UCC-1 financing statements against your business that may have been filed by other creditors of the business. In addition, this step can shed light on disputes about who was first in line to collect. If there are several different cash advance funders with UCC filings claiming the same receivables, ask them for copies of their financing statements, all amendments, and the contracts on which the filings are based. The funder who files first generally has first priority to collect on the collateral, but the priority order isn’t always cut-and-dried.

A UCC filing generally stays effective for five years. If no continuation is filed, the financing statement lapses. If the creditor renews the financing statement within the six months before the five years is up, the UCC-1 filing lasts another five years. Be careful not to read a continuation as a termination. Just because a UCC financing statement comes off doesn’t necessarily mean the funder can’t sue you or your business.

Termination Statement

If you have paid off the agreement with no promise of more funding, or never authorized the filing, send the funder a signed letter demanding that it send or file a termination statement. The funder then generally has 20 days from getting your demand to send or file a termination statement. If the funder ignores your demand or filed without permission, the law gives you the option to sue for $500 plus actual damages.

Keep in mind that a correction notice doesn’t cancel the financing statement. Unless you have settled with the funder and they give you exact written instructions that you follow exactly, do not file a termination notice yourself. When you settle, get an agreement in writing that settles all issues, and make sure you get the financing statement numbers that will be terminated, the date the termination will be filed, who will file it, and a promise that any prior customer notifications will be withdrawn. Get the details before the deal closes, so you know what’s really settled.