Under Revised Article 9 of the Uniform Commercial Code, secured parties are permitted to pre-file UCC Financing Statements, meaning they may file their UCC document before official execution of the security agreement provided the secured party receives proper authorization from the borrower. This week, we welcome Steve Capper of Flexible Funding as a guest author on the FCS blog. In this piece, Steve offers some words of caution for borrowers about pre-filed UCC’s.

A Factor’s Perspective on Pre-Filed UCC Financial Statements

Beware of Uniform Commercial Code UCC Filings that may be filed on your business by a funding organization that you are just “talking to” or “considering” and not actually doing business with. This could be done by a large bank as well as by a privately owned straight factoring company that purchases accounts receivables.

In some cases, a pre-filed UCC filing on your business is a tactic to get a jump on other funding organizations you may be talking to. It is counting chickens before they hatch. In other cases, when you fill out funding application to be reviewed by a funding company there may be very tiny fine print in the application that allows them to file a UCC …while just looking at you. Because the fine print is so small, and because it is just an application rather than a loan contract/document, many people miss it. Most businesses do not regularly track UCC filings and are usually surprised, and even angry to find about these UCC filings on their business. Sales and business development people for funding organizations rarely call attention to a miniscule UCC authorizing clause, as it may be an obstacle to bringing in an application.

If you need short-fused funding very quickly and are not going with the company that filed a UCC-1 document against you by an authorizing clause in an application, you have to get it terminated very quickly. Sometimes that is easier said than done because they may delay to try to save the deal, or want to take time to resell you on their program. The best way to get the document terminated quickly is to make an authenticated demand for the secured party to terminate their pre-filed UCC. A secured party’s failure to terminate such a UCC filing after having received such can result in serious legal consequences for the funding company.

About the Author

Contributed by Steve Capper, Principal/CEO of Flexible Funding, LLC, San Francisco, CA. Flexible Funding specializes in payroll funding for staffing agencies across the nation. You can visit their website for more information http://www.flexiblefund.com/ or reach them by phone at 800-487-8327.

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