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ComplianceFinanceSeptember 29, 2021

UCC filing data is a story that can make or break lending decisions

Part one of a two-part series. 

Today’s lenders need accurate and actionable debtor data, and many financial institutions rely on third-party providers to deliver it for them.  

All UCC information resides in the same place — secretaries of state — before it’s aggregated and delivered to a lender by a service provider, so it would appear to be a completely level playing field.

However, not all data resources are created equal. It's how the information from secretaries of state is further vetted that makes the difference between diligent lending and sloppy management of assets.

What is data quality, and why does it matter?

Data quality can be defined by its accuracy and its currency. In other words, the data needs to be correct, but it also must be timely. Both of those areas work together to ensure that lenders get the data they need, so they can make wise decisions. If data on potential borrowers is current but rife with errors, the lenders using it may unwittingly make riskier decisions. Similarly, data that was 100% accurate at one point in time but late in being reported can be rendered meaningless in the commercial lending world that seems to move at the speed of light.

But correct data, delivered at the right time, can provide lenders with exactly what’s necessary for protecting their own interests and growing financially.

The process is fallible

You have probably heard the computer programmer’s saying, "garbage in, garbage out." That adage applies to a lot of things, especially subpar borrower data that's relied on for making lending decisions. 

The reality is that there can be significant gaps in quality of data residing at the secretary of state level. Whether through error on the part of the filer, or a hiccup in the filing process, 20% of UCCs are filed containing one or more errors. Sometimes these errors are as minor as the omission of a piece of punctuation. But no matter how small, those errors can cost a financial organization millions of dollars (or more). If a lender is not paying close attention, errors will make their way to the middle of a valuable financial decision. Beware the fastest or the cheapest data source as it may only be “rebroadcasting” erroneous information from a secretary of state.

The reality of currency dates

Data currency refers to the date through which information can be considered accurate. At the state level, for instance, all filings might be verified through, let’s say, the 20th of the month. If today’s date is the 25th, we would understand that a particular borrower’s information would be confirmed accurate as of 5 days ago. That’s important for a lender to know, as the closer to today’s date the posted currency day is, the less likely it is for debtor to have been able to further extend themselves financially, such as entering into a loan agreement with another creditor.

But speed isn’t the only thing to think about when reporting currency dates. If a lender is accessing currency data from a third party that’s simply been copied verbatim from a secretary of state website, they might be missing an important part of the story.  By simply copying and pasting from a secretary of state website, a service provider is just serving as a conduit rather than a part of the data verification process. It’s not that the data is incorrect, per se. It’s just not actually representative of the date through which the information can be considered most accurate. That level of accuracy only comes from additional verification steps taken by the provider.

Our approach

At Lien Solutions, we set our currency dates using additional independent data points to ensure complete accuracy. We also use statistical analyses that are state-specific to more fully and clearly define the currency date. Additionally, the currency date we use is not shared with our clients until database pre-loading checks have passed. Even then, we won't certify the data as current until any discrepancies have been addressed with the state and solved.

A lender might very well find a more current data date published by a third-party service provider, but it may not have been vetted to ensure correctness. For example, was the data checked against what the provider knows to be true based on their own work? Does the provider even have staffing with the ability to analyze data? Or is the data treated like a commodity and the provider simply a middleman?

Lien Solutions treats data as the valuable asset it is and we employ a thorough, 5-step process that vets other aspects of debtor information before it’s published in iLien.

Part one of a two-part series. Read part two: "What story is your data telling you?"