I have been blogging for 21 months for AllBusiness.com. Every month I see a list of the top blog posts that have been read during the month. One blog has stood out nearly every month as the most read post I have written here. It is information I believe every business owner should know about UCC filings. If you haven’t yet read this post and you are a business owner who has loans, I encourage you to read it.
I am currently working on a financing project to assist an established, profitable IT technology company raise $1 million to help them grow. One of the first things I do when I start a financing project is to research all the UCC-1 filings made against a client. It is rare for a client to know whether or not they have a UCC-1 filed. In my research on my current customer I found one UCC-1 filed in the state secretary of state’s office. Instead of a bank, it was filed by three individuals in November 2005. When I asked the business owner, he acknowledged that he had borrowed money from the three individuals.
Before we can secure new funds for the client we will have to get this outstanding UCC terminated. The client paid back the money in a timely manner but no one terminated the UCC. I don’t expect my client will have a problem running down the three individuals to obtain a letter allowing us to terminate the UCC on his behalf, but I want to discuss the implications.
Normally, a UCC filing expires five years after it is made. Our goal is to have the new loan in place before the beginning of summer 2010. If there is a problem finding one of the three individuals that had filed the UCC, we must wait until November 2010 when the UCC expires.
In order to avoid issues like this one, every business owner should check their state secretary of state’s office once a year to look for UCC filings that should be terminated. Most states allow this to be done online for a very small fee. In my particular state, a search cost $1.00; in some states the search is free. Additionally, it is wise to check the local county courthouse, since some liens get filed there as well as the secretary of state’s office.
When you have a secured loan that is paid off, don’t assume that your lender will terminate the UCC filing. As part of your final payment, you should write a letter to the lender requesting that all UCC filings be terminated. This will help keep the records clean and you won’t have any surprises when you need to borrow money in the future.
Sam Thacker is a partner in Austin Texas based Business Finance Solutions.
You may contact Sam directly at: firstname.lastname@example.org
or follow him on Twitter: SMBfinance
EXTRA: If you have questions for Sam regarding business financing, the credit market, and similar issues, please send an e-mail. Your questions will be recorded and Sam will answer the best ones in his Ask the Expert podcast show.