Regulation of Financial Contracts

If you are conducting business transactions outside of your state, such as borrowing money, leasing equipment, establishing contracts and selling goods, you need to comply with the Uniform Commercial Code (UCC). UCC consists of uniform rules coordinating and simplifying the sale of goods and other commercial transactions throughout the United States. 

Commercial transactions often occur across state lines. Goods, for example, may be manufactured in one state, distributed in another and sold to a customer in a third state. Banking and credit transactions often occur between financial institutions in one state and customers in another state. 

For small businesses, UCC comes into effect when borrowing money from an out of state lender or negotiating a lien. Here is what you need to know: 

  • Borrowing Money: UCC Filing Statements – The Uniform Commercial Code or UCC, as it relates to lending, is a way for each state to have a consistent method of recording the security of a loan. When banks or SBA lenders make secured loans, or loans with collateral, they file a UCC-1 form with the state where the loan agreement is executed. This filing essentially makes the loan security, or collateral, a matter of public record. Without this filing, a lender could run into difficulties, laying claim to the collateral in case of default. Talk to your lender about the process of filing a UCC-1 form.
  • Securing Liens and the UCC – If your business provides goods or services on credit, Article 9 of the UCC provides a means for you to secure payment from your debtor. If you are in the construction business, the equivalent law is called a construction lien. Visit your state’s website for information on filing a lien or finance statement to ensure payment of credit under these laws.

Remember that laws vary from state to state, so you should consult an attorney on matters concerning UCC filings, liens and security agreements.