UCC filing confusion with factoring and security agreement overlap

Just pulled the loan agreement and you're right - there's a clause about not granting liens without written consent. Looks like I need to get bank approval first. Thanks for catching that.

Yeah that negative pledge thing will get you in trouble fast. Banks get really touchy about additional liens on their collateral.

In factoring, it's different because you're actually selling the receivables to the factor, not just granting a security interest. The factor buys the AR outright, so they own it rather than having a lien on it.

Oh that makes more sense. So it's a sale vs. a loan basically.

Exactly. True factoring is a purchase of receivables, not secured lending. But some 'factoring' deals are really just AR lending in disguise.

That sounds really helpful. Does it check the actual UCC filings too or just the agreements?

Both. You can upload the UCC-1 and the security agreement and it cross-checks everything - debtor names, collateral descriptions, filing numbers. Really useful for catching inconsistencies before they become problems.

Interesting, I hadn't heard of that tool. Might be worth checking out for our portfolio review.

It's with recourse - we're still liable if customers don't pay. So sounds like it's really a secured loan disguised as factoring?

That's getting into secured transaction territory. The recourse element makes it look more like collateralized lending than an outright sale of receivables.

This is why factoring deals can be so tricky. Half the time they're not really factoring at all.

Haven't thought about subordination agreements. Would that require new UCC filings?

Usually just amendments to note the subordination, but depends on your state. Some require separate subordination filings.

Subordination agreements are great in theory but getting banks to agree is like pulling teeth.

Good point about the cash flow improvement. The factoring would definitely help with working capital issues we've been having.

Banks sometimes like factoring because it converts AR to cash faster, which strengthens the borrower's position.

yeah banks are usually cool with stuff that makes you less risky to them

Just checked and it says 'all accounts now owned or hereafter acquired' so sounds like it covers future receivables too.

That's pretty comprehensive. Definitely need bank consent before proceeding with the factor.

Those 'hereafter acquired' clauses are standard in commercial lending. Banks want to lock up everything.

Which tool did you use? I'm worried about getting everything exactly right with multiple filings involved.

Used Certana.ai - just uploaded all the docs and it flagged the inconsistencies. Super easy and caught stuff I would have missed.

Name mismatches are such a pain. Good catch on getting that verified.

That's a really good compromise approach. Limit the scope so both lenders are comfortable.

Exactly. Banks are more flexible than they appear if you present it as risk reduction rather than competition for their collateral.

This is solid advice. Partial subordination deals work well when structured thoughtfully.

Definitely not worth the risk. I'll get bank approval first before any filings happen.

Smart move. Default notices are not fun to deal with.

Yeah banks can be real jerks about technical defaults even when you fix the problem.

Great news! Banks are usually reasonable when you approach them proactively rather than after the fact.

Smart handling of the situation. Getting consent upfront saves so much hassle later.

Glad it worked out! Make sure all the final documents are consistent when you file any amendments.

That's awesome! I'm actually dealing with a similar situation right now and was worried my bank would be difficult about it. This gives me hope that a direct conversation might work better than I expected. Did they mention any specific terms they want in the factoring agreement?