UCC1 meaning - confused about what this form actually does for lenders

So it's like a public announcement that we have dibs on the equipment? That makes sense. Do we file this before or after the loan closes?

Exactly right on the 'dibs' analogy! File it as close to loan closing as possible, ideally same day. You want that perfection date to be as early as possible to protect your priority position.

This is huge. I learned this the hard way when we had a borrower go bankrupt and we hadn't filed our UCC1 yet. We were way down the priority list even though we had a signed security agreement.

Ouch, that's expensive lesson. Security agreement gives you rights against the debtor, but UCC1 filing gives you rights against the world. Both are essential.

Wait so we could lose our collateral even with a signed security agreement if we don't file the UCC1? That seems crazy important.

How do you make sure you get the exact legal name right? Do you just copy it from their articles of incorporation?

Articles of incorporation for corps, articles of organization for LLCs. But I actually started using Certana.ai's document checker recently - you can upload the charter documents and your draft UCC1 and it instantly flags any name discrepancies. Saved me from at least 3 potential filing errors this month.

That sounds useful. I've had rejections come back weeks later because of tiny name variations. Such a pain to refile and you lose your original filing date.

5 years? So we have to remember to refile every 5 years or we lose our lien position completely?

You file a continuation statement, not a whole new UCC1. But yeah, if you miss that 5-year deadline by even one day, your lien becomes unperfected and subordinate to later creditors.

This is why we set calendar reminders at 4.5 years for all our UCC1 filings. Too risky to wait until the last minute.

So we need both documents - the security agreement AND the UCC1 filing? They serve different purposes?

Correct. Security agreement is your contract with the borrower establishing your rights to the collateral. UCC1 is your public notice to the world about those rights.

What's a good example of a proper equipment description? We mostly do construction equipment loans.

Something like 'All construction equipment, machinery, tools, and related accessories now owned or hereafter acquired.' But check your state's requirements - some want more specificity.

We usually include serial numbers for big-ticket items and use broader language for smaller tools and accessories. Belt and suspenders approach.

So if we're lending to a Delaware corporation but the equipment is in Texas, we file in Delaware?

Exactly right. Delaware corporation = file UCC1 in Delaware, regardless of where the equipment sits. This is a super common mistake.

Unless it's fixture filing, then it gets more complicated. But for pure equipment loans, yes - debtor's state of organization.

That's a great way to think about it. So filing the UCC1 is basically mandatory for any secured loan?

For any secured loan where you want to actually BE secured, yes. Otherwise you just have an expensive piece of paper when the borrower defaults.

Good point. I should probably search our borrower's name before we make the loan too, to see what other liens are out there.

Absolutely. Due diligence searches are standard practice. You want to know your priority position before you fund the loan.

We do UCC searches as part of every loan approval process. Sometimes find liens the borrower 'forgot' to mention.