Uniform Commercial Code
About the UCC
The Uniform Commercial Code is a comprehensive set of laws governing commercial
transactions between U.S. states and territories. These transactions include borrowing money, leases, contracts, and the sale of goods. The UCC is not a federal law, but a product of the National Conference of Commissioners on Uniform State Laws and the American Law Institute, private organizations that recommend the adopting of the UCC by state governments. State legislatures may either adopt the UCC verbatim or may modify to meet the state's needs. Once a state's legislature adopts and enacts the UCC it becomes a state law and is codified in the state's statutes. All 50 states and territories have enacted some version of the UCC.
UCC Filings and Small Businesses
The most important UCC regulation affecting small businesses is the UCC-1 form, also known as a Financing Statement. When a lender secures interest in a borrower's personal property used as collateral, the lender files UCC-1 form with the state's (or equivalent state records office). Lenders can also file UCC-1 forms in multiple states if a borrower has business locations in multiple states, or moves from one state to another. "Personal property" means non-real property used in operating a business, such as equipment, furniture, and inventory.
The UCC-1 form serves as a public notice of a lender's interest in the assets for a business. All information on a UCC-1 form is public information. Before a lender makes a secured loan, it does a lien search in the state's UCC filings database to make sure no other UCC-1 form has been filed against the borrower's collateral. If more than one lender files a UCC-1 against the same collateral, the one filed first has a priority claim should the borrower default or go bankrupt.
