UCC filings and merchant cash advances, what they mean for you.

What is a UCC-1 financing statement?

The Uniform Commercial Code (UCC) is a set of laws, adopted with some variations by every state, that governs commercial transactions. One part of it deals with interests in business property such as equipment, inventory and accounts receivable. To make that kind of interest effective against other creditors, the party claiming it generally files a short form called a UCC-1 financing statement.

A UCC-1 is brief. It typically lists:

• The business's exact legal name and address (the "debtor" in UCC terms, a legal label for whoever's property is described)
• The name and address of the party filing (the "secured party")
• A description of the assets covered, the "collateral," which can be specific or broad

For a corporation or LLC, the filing generally goes to the secretary of state, or equivalent office, in the state where the business was formed. Filings are public and searchable.

Why do merchant cash advance funders file a UCC-1?

When you take a merchant cash advance, you sell a portion of your future receivables. The UCC covers sales of certain receivables as well as security interests, so a funder that buys receivables commonly files a UCC-1 to put its interest on the public record. That does two things:

1. It gives notice. Anyone who searches your business's filings, such as another funder or a bank, can see that a party has an interest in your receivables.
2. It helps establish priority. Between competing creditors, the timing of filings can affect who has the stronger claim to the same assets.

The collateral description on an MCA funder's filing is often broad, sometimes covering receivables and other business assets. Your agreement, not the filing alone, governs what the funder's rights actually are, so read both.

What a UCC filing means for your business

• It's a public record. Anyone can search for filings against your business name.
• It doesn't take money or property by itself. A filing is notice. What a funder can do, and when, depends on your agreement and the law.
• It generally doesn't appear on personal credit reports. It may appear on business credit reports, which often list UCC filings.
• It lasts until it's terminated or lapses. A UCC-1 generally stays effective for five years unless it's continued, so it won't disappear on its own when your advance is complete. Ask for a termination.

How a UCC filing affects other financing

Banks, equipment finance companies and other funders routinely search UCC filings before they extend credit or fund an advance. What they find shapes their decision:

• A bank or SBA lender may want a first-priority interest in certain assets. It may require an existing filing to be terminated, or ask the existing filer to agree to a subordination, before it closes.
• An equipment lender usually takes an interest in the specific equipment it finances. Whether an existing broad filing matters depends on that lender and the documents.
• Another MCA funder will see existing filings as evidence of existing advances. That's one reason it pays to disclose every advance up front; see positions and stacking.

A business with filings on record can absolutely still get financing. Second position and onward is InstaFunders' strong suit, so an existing filing from another funder isn't a barrier with us. But stale filings from advances you've already completed can slow down a bank application, so it's worth cleaning them up.

When and how is a UCC filing terminated?

Changes to a UCC-1 are made with a form called a UCC-3. It's used for several purposes: continuing a filing, assigning it, amending it, or terminating it. A termination tells the filing office that the filer no longer claims the interest described.

1. Deliver the advance in full, either through scheduled payments or an early payoff.
2. Ask the funder to terminate its filing. Put the request in writing and keep a copy along with your payoff confirmation.
3. Check the state's records. Search your business name in the filing office's database to confirm the termination was recorded.
4. Follow up if it isn't. The UCC gives a business a way to formally demand a termination once the obligation has been satisfied. If a funder doesn't act, an attorney can advise you on next steps.

How to check for UCC filings on your business

Most states offer an online search on the secretary of state's website. Search by your business's exact legal name as registered, since filings are indexed by that name and small differences can hide a result. Some states charge a small fee for official search reports. If you've moved your state of formation or changed your legal name, search under both.

Looking at your own filings before you apply is a smart step, especially if you've had advances in the past. Then check the requirements and compare offers using our guide to reading an MCA offer.

Frequently asked questions