Business financial transactions have many legalities, especially those secured with liens. The Uniform Commercial Code (UCC) protects your business interests when using items as collateral for a large business purchase. The laws behind a UCC filing are often intricate and require a deep understanding. If you don’t file the lien correctly, its protection can be lost. Despite the importance of correct UCC filings and the management of the filings, many businesses take the chance to file their own.
Concerns when filing a UCC lien include accuracy in legal documents, priority of claims, variations in state laws, collateral description, and more.
Accuracy and completeness
Accuracy in legal documents is essential, and that includes UCC filings. Businesses that file their liens can make mistakes in the filings, potentially rendering them unenforceable. Some of the common errors in UCC filings include:
- The debtor’s name and/or address
- Collateral description
- Neglecting to include the necessary documents, including financing statements or security agreements
- Miscalculating filing fees
- Filing UCC documents in the wrong jurisdiction
- Missed deadlines
- Failing to renew the filings
- Providing inconsistent information across UCC documents
- Failing to complete all of the required fields
- Lack of understanding of UCC regulations
Additionally, every jurisdiction has its specific terminology, formatting guidelines, and filing procedures that the business must follow. Even one mistake could jeopardize your interest in the collateral.
Timeliness
Priority of claims is a major concern for UCC filings. During a bankruptcy, certain debts are given priority, including secured loans. If you don’t file the UCC filing on time or if you err in filing and the debtor declares bankruptcy, your interest in the collateral may not be covered as a secure loan.
Since secure loans are paid by the bankruptcy court first, you could potentially lose all of the money tied up in the collateral.
Should the debtor default, you may not be able to recover the collateral if there is an error in the UCC filing or if it has not been filed before the debtor defaults.
Jurisdictional requirements
When filing a UCC, you must know state law variations if you do business out of state. UCC filings are usually filed with the Secretary of State in the state where the debtor’s place of business is located. Alternatively, you can file the UCC in the state where the debtor lives. In the case of real property, you should file the UCC with the county recorder’s office where the debtor’s property is located.
Every state has its regulations that govern UCC filings. If you fail to follow the guidelines, the state could reject your filing. At the least, it will cause a delay in filing, which could also cause you to lose money if the debtor defaults or files bankruptcy.
Additionally, each state and county may have its own jurisdictional rules regarding UCC filings, including documents that must be submitted with the UCC filing. Researching various UCC laws can be overwhelming, and misunderstanding or missing a regulation could result in a rejected filing.
UCC Monitoring and maintenance
Monitoring and maintaining your UCC filings can be as important as filing them properly and on time. When a debtor makes changes, you must change the UCC filing to reflect those changes, or the filing could be nullified. Business restructures, changes in collateral, business name changes, and more could affect your ability to recover funds or property if the debtor defaults or files for bankruptcy.
Additional reasons you should monitor UCC filings include:
- Maintaining priority after the debtor makes changes.
- Identifying changes in collateral.
- Detecting fraudulent activity, including fraudulent filings against your assets.
- Ensuring compliance by timely filing amendments and renewals.
- Proactively managing risk by knowing the financial health of your secured transactions.
- Facilitating due diligence during acquisitions and mergers.
UCC monitoring and maintenance ensures the protection of your investments and assets by ensuring you have enough security interests in place.
Cost management
Although initial filing fees may not seem high, multiple filings, especially for businesses operating in multiple states or businesses with a large volume of transactions, can mean higher filing costs.
In addition to the initial filing fees, you can incur costs associated with rejections, errors, and delays. If you file with the wrong jurisdiction, you’ll have to pay another filing fee to file the UCC filing in the proper jurisdiction.
Rejected filings due to errors and non-compliance with jurisdictional regulations are also concerns for businesses trying to save money on UCC filings. These costs add up quickly, especially if you have a large volume of UCC filings and several are rejected.
To mitigate the risk of rejected filings and their associated costs, retain a professional UCC filing company to handle, monitor, and maintain your filings.
Resource allocation
Filing your own UCCs can create a resource burden. If you file your own UCC reports, you’ll have to allocate the necessary resources—employees and associated costs, office space, and more—which can take people away from other jobs they can be or should be doing.
When you retain a risk management firm to handle your UCC filings, you not only free up those resources, but you can rest assured that .filings are monitored and maintained.
Subject matter expertise support
Your staff should have in-depth knowledge and expertise in all areas of UCC filings, including best practices, filing requirements and UCC regulations for each jurisdiction, filing fees, and more, in order not to risk rejections.
If you file with a risk management firm their professionals should provide subject matter experience (SME) support by knowing which jurisdictions to file your UCC filings and the specific requirements for each jurisdiction.
They can ensure your filings are error-free prior to submission, thus significantly reducing the risk of rejected filings and delays. They also should be able to streamline the UCC filing process and ensure the filings are monitored and maintained, providing more efficiency and effectiveness should a debtor default or file bankruptcy.
Efficiency
In addition to not worrying about allocating resources when you retain a professional UCC filing company, it should be able to integrate with your business and streamline workflow so that your UCC filings are filed properly, on time, and in the correct jurisdictions. Furthermore, because most UCC filing companies also monitor the UCC filings, they maintain and update them as needed, so you shouldn’t have to worry about a debtor making a change that could invalidate your UCC filing.
Filing your own UCC reports often leads to errors that could cost you extra money and even collateral loss. For medium and large companies, this also means one or more employees must take time away from other duties they could be doing to increase the business’s profitability. Finally, the required training uses time and resources that you could use elsewhere in your business.
Consider alleviating the burden of filing and maintaining UCC filings to protect your collateral by contacting a filing company to handle accurate and timely UCC filings.
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