Protect Your Security Interests with UCC Liens

Protecting security interests is essential for creditors to secure their rights and claims in the event of a debtor’s default or bankruptcy, ensuring the collateral serves as a valuable asset to satisfy debt. To do so, trade creditors can file a Uniform Commercial Code lien, also known as a UCC filing, a legal document that serves as a public notice of a secured transaction, providing information about a creditor’s interest in the debtor’s personal property collateral.

For trade creditors, the security agreement is often a standalone document. Eve Sahnow, CCE, corporate credit manager at OrePac Holding Company DBA OrePac Building Products (Wilsonville, OR), went a different route and decided to add security language to her credit application in addition to devising a standalone security agreement or UCC filing. Sahnow turned to NACM’s Secured Transaction Services (STS) guru Chris Ring for advice; Chris shared a template of a security agreement to her to use as a starting point. Together with her attorney, Eve found a way to incorporate security agreement language into company’s credit application. Once a customer signs the credit application, Eve can proceed with asking STS to complete a UCC filing.

“We were trying to diversify our offerings in how we extend credit,” Sahnow said. “We have our underwriting process, which includes industry standards of credit references and risk management. But we wanted to add another layer above credit insurance and job accounts.”

Chris Birdwell, credit strategies manager at Pioneer Balloon Company (Wichita, KS), had completed UCC blanket filings. “I asked NACM’s Secured Transaction Services to do some refining and make it a standalone agreement to include inventory for a PMSI,” he said. “The UCC1 is just another level of security or credit insurance for your customers and yourself. On a couple occasions, customers had warehouse fires and lost inventory of our product, but because we were secured, we worked with the insurance company to replenish their inventory immediately.”

The only challenge that comes with using or implementing a UCC1 as a standalone security agreement is the customer’s inability to comply for fear or lack of knowledge. “If they’re hesitant, tell them it gives them extra security,” Birdwell said. “I use that as a leverage to have them agree to signing and it makes it easier for credit professionals to go over their credit limit if needed. If the unthinkable were to happen, it’s expensive and something that every creditor should look at, especially if their product is recognizable and in high demand.”

Difference Between Mechanic’s (Construction) Liens and UCC Liens

One of the main differences between a mechanics lien and UCC liens is consent. A mechanic’s lien is a risk mitigator of payment to builders, contractors and construction firms that build or repair structures. Mechanic’s liens also extend to suppliers of materials and subcontractors and cover building repairs and ensures that the workmen are paid before anyone else in the event of a liquidation.

“With mechanic’s liens, the security interest is written into the state statute which determines whether or not you have lien rights and if they comply with the statute to enforce your lien rights—you don’t need consent,” said Chris Ring said. “But with UCC filings, the security interest is granted by your customer and that acceptance comes in the form of a security agreement with specific security language, also known as a UCC Financing Statement (Form UCC1), that allows you to have a security interest in your customer’s personal assets.”they need somebody to step in or need a change in workload.”