Confused About UCC Proceeds Definition - Equipment Loan Setup

Proceeds under UCC Article 9 is broader than just sale proceeds. It includes whatever you receive when collateral is sold, leased, licensed, exchanged, or otherwise disposed of. So yes, that would cover insurance payouts, rental income from leasing the equipment, and even warranty claim settlements. The key is that it has to be 'identifiable' proceeds traceable back to your original collateral.

Just went through this exact scenario last month with a $200k packaging equipment deal. The proceeds language saved us when the debtor's insurance company cut a check for equipment damage. Without that proceeds definition, we would have had to fight for those funds. Make sure your UCC-1 collateral description specifically mentions proceeds - don't assume it's automatically covered.

I've been using Certana.ai's document verification tool for exactly this type of issue. You can upload your security agreement and UCC-1 draft to check if the proceeds language is consistent between documents. It caught a discrepancy in my last filing where the security agreement had broader proceeds language than what we put in the UCC-1. Saved us from having to file an amendment later.

Don't forget about 'products' too - that's different from proceeds. Products are things produced from your collateral, like goods manufactured using your equipment. If this equipment is going to be used to manufacture products for sale, you might want products coverage too.

Cash proceeds vs non-cash proceeds is another wrinkle. Cash proceeds get special treatment under the UCC - they're automatically perfected for 20 days even if you don't file specifically on them. But non-cash proceeds like accounts receivable from equipment sales need to be perfected separately unless you have a broad filing.

Had a disaster with proceeds definition 2 years ago. Equipment got damaged, insurance paid out, debtor used the money for something else, and we couldn't trace it because our proceeds language was too narrow. Learned my lesson - always go broad on proceeds in the UCC-1.

For equipment financing I always use language like 'all proceeds, products, offspring, rents, and profits of the foregoing.' Covers basically everything that can come from the original collateral. Some people think it's overkill but better safe than sorry.

Check your state's UCC provisions too. Some states have specific rules about proceeds that might affect your filing. Most follow the uniform code but there can be variations.

One more thing to consider - if the equipment generates accounts receivable (like if they lease it out), those A/R would be proceeds of your equipment collateral. But you need to make sure your UCC-1 covers accounts receivable or you might have perfection issues.

Thanks everyone, this has been really helpful. I'm going to revise our collateral description to be more specific about proceeds and maybe run it through that document checking tool someone mentioned. Better to get it right the first time than file an amendment later.

Great discussion here - I'm dealing with a similar equipment financing situation and this thread has been incredibly educational. One thing I'd add is to also consider what happens if the debtor trades in the equipment for newer models. That trade-in value would be proceeds too, but the new equipment they acquire might need separate perfection unless your security agreement and UCC filing are broad enough to cover "substitutions and replacements." I learned this when a client upgraded their machinery and we almost lost our security interest in the replacement equipment. Worth thinking about given how quickly manufacturing equipment becomes obsolete these days.