What a UCC Filing Is and How It Affects Personal Credit: 5 Distinctions to Keep Clear

UCC filings usually do not affect an individual’s personal credit, so it’s unlikely the lender will report to consumer credit bureaus in a way that would impact credit scores. The filing sits on the business credit report, not the individual’s personal report. Your personal credit is a separate matter, except in the case of a personal guarantee. If you signed a personal guarantee on your loan and you fall behind on your payments, your score could feel the impact.

Make sure to clear up something: a lien is not actually a debt. It is a public record of secured debt. When the creditor files, it does so with the secretary of state. The filing doesn’t itself create a debt - it simply makes public notice that you owe a debt to a specific creditor. UCC filings can be of two types. When a lender finances equipment, for instance, the lien is placed on the equipment. When a merchant cash advance company advances money, it’s common for the lien to be placed on “all assets.” Usually, a UCC filing lasts five years. In the last six months, the lender can file to renew it for another five years.

The reason it’s unlikely that your personal credit file will be impacted is that your business and your personal credit reports are completely different. When Equifax, Experian, and TransUnion watch you, they do so through the lens of your Social Security number. When it comes to business credit, the watchers are Equifax Small Business, Experian Business, and Dun & Bradstreet, who are peering through the lens of your EIN. The credit data, for the most part, pertains only to the business itself - and it is tracked, stored and reported separately. Until recently, both civil judgments and tax liens were included on consumer credit reports. Today, the only public record that appears on personal credit reports is bankruptcy. Don’t worry, though - a UCC filing is not bankruptcy.

Business Credit Report

A UCC filing does show up on your business credit report. Keep in mind also that just because it shows up on credit reports doesn’t mean it’s scoring. The UCC filing doesn’t constitute a credit line, an installment loan or any other kind of financial activity. The filing itself doesn’t show as any type of financial product. What it does do, though, is signal to other lenders who look at your business credit report the existence of a right to your assets. Just because the UCC filing isn’t a loan, doesn’t mean other lenders won’t view it that way. They can also see that their claim to any assets in the event of default won’t be as high up as the claim of the first debt. Therefore, they will probably want more in order to reduce their own risk. Business scores typically only feel it when you default. A lot of active liens, on the other hand, can get in your way because they look like you are very heavily leveraged and could make a lender deny you credit.

Personal Guarantee

If you can tell the difference between a lien and a personal guarantee, you are on the right track for understanding how a UCC-1 filing relates to your personal credit. A personal guarantee is a legal, on paper statement, signed by the business owner, that the business debt will be taken care of by the guarantor in the event that the business can’t cover it. In the event that the business doesn’t pay the debt in full, the lender will come to you for it. A lot of lenders won’t extend a loan without requiring that you sign a personal guarantee. A guarantee may not be necessary for a secured loan, because the assets in the lien can be reclaimed in the event of default. But a creditor of unsecured debt has nothing to leverage against you except a signed agreement that you will repay the debt. When a lender collects on a defaulted loan with a personal guarantee, they can report to the consumer credit bureaus just as if it were an individual debt.

When you sign a guarantee for a business loan, that doesn’t necessarily mean the debt will show up on your personal credit report. It will stay a business matter as long as the account stays current. If the loan defaults or the debt is sent to collections, it could land on your personal report and negatively affect your score. A collection or a charge-off can hurt for seven years, counted from the date 180 days after the delinquency occurred. Guarantees are common on SBA loans too, where twenty percent owners are asked to personally guarantee repayment of the loan.

For example, suppose you open a line of credit in year one. It has a UCC blanket lien that you guaranteed personally. A couple of years later, your business closes with no assets left to pay off the line of credit. If the lender sues you for the outstanding balance, the debt can go on your personal credit report. It’s not the lien that landed it on your personal report. It’s the guarantee plus the default.

Business setbacks can also send you hunting for personal credit that you’ll use to keep the doors open. Missed payments compound the score damage.

Terminate the Previous UCC-1 Filing

Just because you’ve paid back the debt associated with the UCC filing doesn’t mean that the filing itself goes away. The obligation is the reason behind the UCC-1 filing, but once the filing has been made, it has its own separate identity. You must request from the lender that the UCC-1 be terminated. Once the termination request has been given, the lender files a form that’s known as UCC-3 to the secretary of state to terminate the previous UCC-1 filing. Once the lender receives your written demand, the lender has twenty days to comply. If it fails to do so, you can recover $500 in addition to actual damages. If the data in a filing under your name looks wrong or wrongful, you can file an information statement with the secretary of state. It doesn’t cancel or remove the original filing.

You can monitor all public record data that hits your business credit reports by regularly reviewing your Equifax, Experian and Dun & Bradstreet reports, and by searching by name for liens using your state’s UCC database.