Full Video Transcript
Interstate commercial transactions - such as contracts and loans - are governed by the Uniform Commercial Code, known as the UCC. All 50 states have adopted a version of the UCC. According to the UCC, when a lender secures a business loan with personal property rather than real estate the lender must file a UCC-1 financing statement with the Secretary of State's office. This puts the public and future lenders on notice that specific personal property of the business - such as equipment or inventory - is collateral for an already existing debt. The first lender to file a UCC -1 for specific property usually has priority over obtaining that property if the borrower defaults on the loan or files bankruptcy.
Few lenders voluntarily terminate a UCC-1 - even when the loan is paid off. So as a borrower, it is important to request that the UCC-1 be terminated after the loan has been paid in full so that an accurate statement of your secured loans is available to the public, investors and future lenders.