UCC filing with binding agreement to extend credit - how to establish security interest properly?

This is correct. The binding agreement itself provides the consideration needed. Don't wait for the actual advance.

Good to know! I was always confused about when exactly the security interest attaches.

That's reassuring. Did you run into any issues with the debtor not having rights in the equipment before purchase?

We handled that by having the security agreement cover after-acquired property. Once they bought the equipment with our funds, our security interest automatically attached.

Smart approach with the after-acquired property clause. That's standard practice for equipment financing lines.

If the credit agreement is terminated and no funds are ever advanced, then no security interest would have attached. But the UCC filing itself remains valid - you'd just terminate it to clean up the records.

Makes sense. Better to have the filing in place and terminate it later if needed than to miss the window.

That sounds useful. We've had issues before where our collateral descriptions didn't match the actual security agreement language.

Exactly - it's automated document checking that spots those mismatches before they become problems. Saves a lot of headaches with rejected filings.

I might need to check that out. We just had a UCC-1 rejected because of debtor name inconsistencies between our loan docs and the filing.

Tell me about it. Last month they rejected our continuation because the debtor name had one extra space in it.

That's exactly the kind of thing that drives me crazy! One space and suddenly your lien is at risk.

Good point. Should I explicitly reference the credit agreement in the security agreement itself?

Yes, and make sure the credit agreement amount matches what you reference in the security agreement. Keep the documentation consistent across all docs.

This is where having a good document review process really pays off. Small inconsistencies can become big problems later.

Right, it's about the legal commitment to extend credit, not the actual extension.

Exactly. The risk is in waiting too long and having another creditor perfect their interest first.

No, attachment and perfection are separate steps. Attachment is when the security interest becomes enforceable. Perfection is when you get priority over other creditors through filing.

Ah ok that makes more sense. So you want to perfect as soon as possible after attachment to get priority.

Actually, you can file the UCC-1 before attachment too. The perfection becomes effective once attachment occurs.

Yes, same basic rules. Just make sure your collateral description properly covers inventory and any proceeds from sales.

Perfect, thanks. The inventory turnover makes me nervous about the collateral description language.

For inventory, you definitely want to include proceeds language in your UCC-1. Inventory gets sold and you need to maintain your security interest in the proceeds.

Not an SBA loan in this case, but good reminder about checking any special program requirements.

Right, different loan programs can have their own timing requirements that overlay the basic UCC rules.

Glad we could help! The key is understanding that the binding credit commitment provides the value needed for attachment.

Good luck with your filing! These timing issues can be tricky but you've got the right approach.