Why do I have a UCC filing from a factoring company? What is a UCC 1 Financing Statement?
There’s nothing worse than getting an unexpected surprise when you’re running a personal credit check or having another financial institution look into your background and finding something you were never aware of. You’re expecting, or maybe just hoping for, good news on that possible “approval” but instead, you get that gut-wrenching gasp when you find out that there’s an issue that needs to be addressed.
This happens often while getting your business off the ground and trying to get approved for some form financing. It might be more common to hear that a bank owns the title of your vehicle or has a lien on a particular asset that you know you’re paying off, but sometimes you hear about something called a UCC and have no idea what it is and feel blindsided when you realize that there is one filed against you.
The Uniform Commercial Code was first published in 1952 and is one of many acts approved that govern and establish the laws of conducting business and the sale of commercial transactions. Factoring companies operate under the confines of Article 9 where it spells out the buying and selling of accounts receivables. Essentially, when a small company factors their invoices, you and your business is agreeing to sell your invoices under the rules of the UCC, therefore both the Buyer and Seller agree to the laws of the relationship within.
When you agree to the specific terms in either an application or a contract, you’re allowing for a factoring company or maybe some lender to file a specific document called a UCC-1 Financing Statement on yourself personally as well as your company. These financing statements define the collateral that you’re allowing the Buyer (in factoring) or Lender (in banking, ABL, or MCAs) to secure themselves with on the relationship.
A lot of factoring companies place these terms on their application or on their contract in order to protect themselves in the event that a company goes bankrupt and they can be listed as a first position creditor in the event of default. This is obviously the worst case scenario and not something a factoring company wants to happen but it’s only there as a form of protection just in case. If you’re confident in your business dealings, then you should have nothing to worry about because the UCC is kind of like an insurance policy in case something goes wrong.
OperFi differentiates itself from other factors because we want you to understand how UCCs work and why they’re in place. We don’t want these worst-case scenarios to happen and we work diligently to ensure that your business is successful so that both parties can maintain a long and prosperous relationship. Your successes are aligned with our goals so it’s important for you to ask questions and keep an open dialogue to ensure you understand your contract, obligations, and what you and your factoring company’s rights are. You might have to expect that a UCC might be filed on you and your company, but at least now you know why.
Contact your OperFi factoring representative today to see what it takes to become a factoring client and why our services can be measured up against the top factoring companies in the United States.
Partner with OperFi today to get a customized quote and help you understand the path that it takes to grow your trucking business in order to qualify for bank financing down the road.
