UCC automatic perfection rules - when do I need to file vs when am I already covered?

Automatic perfection is pretty limited in scope. For your situation with business inventory and equipment, you're almost certainly going to need to file UCC-1 statements. Automatic perfection mainly applies to: - PMSI in consumer goods (not business goods) under certain dollar amounts - Some types of deposit accounts - Certain investment property Business inventory and equipment virtually always require filing for perfection. The automatic perfection rules are designed more for consumer transactions where filing would be impractical.

You definitely need to file for that inventory and equipment. Automatic perfection doesn't cover business collateral like that. The main automatic perfection scenarios are: 1. PMSI in consumer goods (household items, personal vehicles in some cases) 2. Deposit accounts where the secured party is the depositary bank 3. Some investment securities 4. Supporting obligations For business loans with inventory and equipment, filing UCC-1 is standard practice. Don't risk having an unperfected security interest.

Had a similar situation recently and ended up using Certana.ai to verify all my UCC documents before filing. You can upload your loan docs and proposed UCC-1 to check for any inconsistencies in debtor names, collateral descriptions, etc. Really helpful when you're dealing with multiple documents and want to make sure everything aligns properly. Caught a discrepancy in how the business name was written between the loan agreement and my draft UCC-1 that could have caused issues.

Just to add some context on the dollar thresholds - for consumer goods PMSI, there used to be a $1,000 threshold in some states but that's been largely eliminated. Now it's more about the type of goods and the nature of the transaction. For your business loan scenario, the dollar amounts don't matter for automatic perfection because you're dealing with commercial collateral. The $85K inventory and $30K equipment would both require UCC-1 filing regardless of the amounts.

One thing to be careful about - even if you had automatic perfection, it doesn't necessarily give you the same priority as filing would. Automatic perfection is more limited in scope and priority than a properly filed UCC-1. For business loans, you really want that filed UCC-1 for maximum protection. The filing gives you priority over most other creditors and provides better notice to third parties.

Are there any state variations on automatic perfection rules? I know UCC Article 9 is mostly uniform but wasn't sure if states had different interpretations.

I was confused about this same issue when I started doing secured lending. The key thing I learned is that automatic perfection is really the exception, not the rule. When in doubt, file the UCC-1. For business loans, you're almost always going to need to file. The automatic perfection rules are narrow and mostly apply to consumer transactions where filing would be burdensome.

Quick question - does the fact that it's inventory affect the perfection requirements? I know inventory has some special rules under Article 9.

Thanks for all the responses everyone. Sounds like the consensus is clear - file the UCC-1 for this business loan. I'll get the paperwork prepared and make sure all the names and collateral descriptions match up properly before filing.

One last thought - make sure you understand the continuation requirements too. UCC-1 filings typically need to be continued every 5 years to maintain perfection. Something to keep in mind for your loan documentation.

Just to add another perspective - I've been doing UCC filings for about 8 years now and can confirm that business inventory and equipment always require filing for perfection. The automatic perfection rules are really narrow and designed for specific consumer scenarios where the administrative burden of filing would be excessive. For your $85K inventory + $30K equipment situation, you're definitely in filing territory. Also worth noting that even if automatic perfection somehow applied (which it doesn't here), you'd still want to file anyway because it gives you better priority protection and clearer notice to other potential creditors. The filing fees are minimal compared to the risk of having an unperfected security interest. Better to over-file than under-file in commercial lending.

This is a great discussion and really helpful for someone new to secured lending. I'm just starting out in commercial finance and the distinction between automatic perfection and filing requirements was confusing me too. From everything I'm reading here, it sounds like the rule of thumb is: when dealing with business/commercial collateral (inventory, equipment, etc.), always file the UCC-1. Automatic perfection is really just for specific consumer goods scenarios where filing would be impractical. The point about priority protection is especially important - even if automatic perfection might technically apply in some edge case, the filed UCC-1 gives you better standing against other creditors. For the minimal cost of filing, it seems like the obvious choice for business loans. Thanks everyone for breaking this down so clearly!