Business man considering how to perfect solar liens.
ComplianceFinanceMarch 03, 2017

For solar equipment lessors, it pays to perfect

If you lease or finance leases for equipment of any kind, be it a forklift, a copier, an oven, furniture, or a solar panel, there are only three rules of business you need to remember: perfect, perfect, perfect. But that’s only one word, you say. True, but as we discuss below, that one word is critically important.

Leasing a piece of equipment is no different than loaning someone money. You expect to be paid a return on your asset during the lease period. However, if the lessee encounters financial trouble during the lease and files bankruptcy, or even goes out of business, what happens to your forklift, copier, oven, furniture, or solar panel? Do you get them back? Or are they liquidated to pay off creditors? And what happens to your investment in that solar equipment or the remaining money owed on the lease? Where do you stand in line to be paid off? Are you even in the line at all?

If you don’t know the answer to these questions, you need to find out — otherwise, you’re putting yourself and your asset(s) at risk. Fortunately, you’ve come to the right place to learn the answer.

UCC filing for solar loans and leases

First, a definition: For the purposes of this discussion, “equipment” is defined as something you lease to someone that the lessee (or debtor) will retain for use in their business or home. We’re not talking about inventory that will later be sold by your customer.

Now, let’s say you’ve agreed to lease the solar equipment. What do you need to do to mitigate risk and protect your position? You need to perfect the lien with a UCC-1 filing as stated in the Uniform Commercial Code (UCC). This UCC filing, must be done with the state in which that equipment is located, within 20 days of delivery (what “delivery” ultimately means is legally left up to you, the lessor, although it’s best to be consistent in all cases). 

Why? Because the lien ensures your place in the line of creditors should the lessee or debtor file bankruptcy or go out of business. With a perfected lien in place, you become a secured creditor.

In most cases for liens, it’s “first filed, first served” (unless a government or taxing entity is involved, in which case they’re almost always at the front of the line). If another business or bank filed a lien against the lessee before you, then they would have first dibs on solar assets.

However, the UCC has a special provision called Purchase Money Security Interest (PMSI) designed especially to protect equipment lessors. Provided you properly file or perfect a lien, this key provision gives you first priority on recovering your solar equipment in the case of bankruptcy or non-payment. But — and this is critically important — you have to file (or perfect) to be covered.

If your UCC filing is delayed, not up to date, or non-existent, you risk losing your lien position altogether should your lessee default on their payments. This puts you, your solar equipment, your investment in that equipment, and perhaps even your entire business at risk.

Protect your leased solar equipment with Lien Solutions

Solar companies must work with a lien management partner that can handle the complexities of UCC filings. As the number one UCC filings provider in the country, Lien Solutions can help perfect your liens and protect your company’s leased solar equipment in the event of borrower default. We help you secure and protect your solar assets, so you can focus on growing your business with confidence. Contact us.

Suzie Neff of Wolters Kluwer Lien Solutions
Market Segment Specialist

Suzie Neff is a Market Segment Specialist for Wolters Kluwer Lien Solutions. She has more than 15 years of experience helping customers build, review, and improve their lien portfolio.

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