Glossary
UCC-1 Financing Statement
A UCC-1 financing statement is a public filing that gives notice that a creditor claims a security interest in specified personal property of a debtor, such as inventory, equipment, or receivables.
Article 9 of the Uniform Commercial Code, adopted in every state with local variations, governs security interests in personal property. When a business grants a creditor a security interest, usually in a signed security agreement, the creditor typically perfects that interest against third parties by filing a UCC-1 financing statement. The form lists the debtor's exact legal name, the secured party, and a description of the collateral. For most registered entities such as corporations and LLCs, the filing goes in the state where the entity was organized, often with the Secretary of State.
A UCC-1 is generally effective for five years from filing. To keep it in force, the secured party must file a continuation statement within the six months before it lapses. Priority among competing secured creditors usually turns on who filed or perfected first, with important exceptions, such as purchase-money security interests, which can take priority in the specific goods they financed if the rules are followed. Errors in the debtor's name can make a filing ineffective, so precision matters.
Here is a fictional example. An industrial equipment dealer, Ironclad Machinery, sells a $95,000 CNC machine to a manufacturer on a 24-month installment contract. The contract includes a security agreement covering the machine, and Ironclad files a UCC-1 describing it before delivery. When the manufacturer later defaults and files bankruptcy, Ironclad is treated as a secured creditor with respect to the machine, rather than standing in line with general unsecured creditors.
UCC filings matter to a creditor in two ways. Filing your own UCC-1 can turn an unsecured sale into a secured one. Searching existing UCC filings on a customer shows who already has liens on its assets, such as a bank with a blanket lien on all receivables and inventory, which tells you how much would be left for unsecured trade creditors if the customer fails.
Example
Ironclad Machinery files a UCC-1 covering a $95,000 CNC machine before delivery. When the buyer later files bankruptcy, Ironclad's claim is secured by the machine.