UCC loans

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Page written by Ashlyn Brooks. Last reviewed on May 12, 2025. Next review due October 1, 2026.

There’s more to business financing; rarely is it as simple as just signing a loan agreement. It also involves understanding how lenders protect themselves, which can in turn have effects on you and your business. One common tool lenders use is the UCC filing, and if you’re considering secured funding, it’s important to understand how this process affects you.

Here at Swoop, we know financing can sometimes feel like a maze, especially when unfamiliar terms like “UCC-1” and “lien priority” start coming into play. That’s why we’ve built this guide to walk you through what a UCC loan really means, how filings work behind the scenes, and what to watch for when structuring your financing, so you can navigate your funding journey with confidence.

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What is a UCC loan?

A UCC loan isn’t a specific product, it refers to any business loan that involves a UCC-1 financing statement filed by the lender. “UCC” stands for Uniform Commercial Code, a body of laws designed to make business transactions, including lending and secured credit, more predictable across the U.S.

When a lender files a UCC-1, they’re publicly announcing that they have a legal claim against certain business assets if you fail to repay the loan. Think of it like planting a flag: “These assets back our loan.”
It doesn’t transfer ownership, but it does give the lender first rights to collect those assets if things go wrong.

Example of a UCC Loan in action

If you finance $100,000 for new restaurant equipment and sign a UCC-secured loan, the lender may file a UCC-1 listing all kitchen appliances as collateral. If you default, they could seize and sell that equipment to recover their money.

How do UCC filings work with business loans?

When a secured business loan closes, the lender files a UCC-1 form with the Secretary of State where your business is registered. The filing includes:

Your business name and address
The lender’s details
A description of the collateral (this could be specific assets like “five delivery vans” or broad like “all business assets”)

The UCC filing alerts other lenders that your assets are already tied up.
Be aware: If the filing describes “all assets” (often called a blanket lien), it could block you from using any other collateral for new loans until the debt is paid off.

Who uses UCC loans?

Borrowers, lenders, and sometimes vendors can employ secured loans with a UCC filing to protect financial interests. Here are three scenarios where this could play out.

1. Small businesses securing loans with assets

Many small businesses use equipment, inventory, or invoices to secure loans, especially when they’re growing but don’t yet have a long credit history. For example, A landscaping company might use its fleet of trucks as collateral for a working capital loan to fund a busy season.

2. Lenders protecting their interest in collateral

From large banks to fintech lenders, UCC filings ensure that if a borrower defaults, the lender has a legal pathway to seize and liquidate assets to cover their losses.

(Important: Always ask if the filing will be asset-specific or a blanket lien—this impacts your future borrowing power.)

3. Startups with limited credit history

Early-stage companies often don’t qualify for unsecured loans, so they use valuable assets (like IP or incoming customer payments) to secure funding.

Something to keep in mind for startups: Startups should negotiate to limit the scope of UCC filings to specific assets whenever possible. Keeping future borrowing options open is critical during the early scaling phase.

What assets can be used in a UCC filing?

Almost any tangible or intangible asset can be pledged under a UCC-secured loan, depending on the lender and your agreement. This includes: equipment, inventory, AR, and intellectual property.

Equipment

Vehicles, machinery, manufacturing tools— anything durable and valuable. Lenders prefer equipment with a clear resale market.

Inventory

Finished goods, raw materials, or stock for sale. Remember: inventory can lose value quickly, so lenders may discount its collateral value.

Accounts receivable

Outstanding invoices owed to your business. This is common in industries like staffing, consulting, and wholesale.

Example: A marketing agency might secure a loan using unpaid client invoices expected to pay out within 60 days.

Intellectual property

Patents, trademarks, copyrights, and software code can sometimes be used, particularly in tech-heavy businesses. Important: IP valuations can be tricky; lenders may require third-party assessments.

Benefits and risks of UCC loans

Pros

Higher approval rates: Pledging assets can make lenders more willing to extend credit, even if your credit history isn't perfect.
Better loan terms: Secured loans often come with lower interest rates compared to unsecured alternatives.
Flexible asset types: You aren’t limited to hard real estate—movable assets like inventory or receivables can qualify.

Cons

Future borrowing restrictions: A blanket UCC filing can tie up all your assets, limiting your ability to secure new financing.

Risk of asset seizure: If you default, the lender can seize the pledged assets (and potentially sell them below market value).
Visible public record: Active UCC filings can be seen by suppliers, banks, and competitors doing due diligence.

It goes without saying, but always review your loan documents carefully before signing. You want to avoid overly broad UCC claims that could unnecessarily burden your business.

UCC loans vs. Unsecured business loans

UCC loans are secured by business assets, giving lenders legal recourse if the borrower defaults, often resulting in lower interest rates and easier approvals. In contrast, unsecured business loans require no collateral but typically come with higher rates and stricter credit requirements due to the increased risk to the lender.

Feature	UCC Loan (Secured)	Unsecured Business Loan
Collateral Required	Yes	No
Interest Rates	Lower on average	Higher on average
Risk to Assets	Yes, in the event of default	No direct asset risk
Application Difficulty	Moderate (asset valuation needed)	Easier, but credit score driven
Effect on Public Record	Public UCC filing	No public filing

How UCC filings affect your business credit and funding options

While UCC filings don’t lower your business credit score directly, they do show up on your commercial credit report.

Other lenders will see outstanding liens when you apply for future funding.
Some lenders prefer “first position” liens meaning they want to be first in line to collect assets if needed.
Active filings can cause financing delays or limit your access to lines of credit and loans.

Here’s a tip: If you’re planning major expansions (like opening a second location), factor in how active UCC filings could impact your funding timelines.

How to apply for a UCC loan

First, let’s begin by considering what lenders look for.

Expect lenders to assess:

The type, value, and condition of your collateral
Your business cash flow and debt-to-income rating
Any existing liens (if your assets are already pledged elsewhere, it could complicate things)

How to prepare your financials and collateral list

Before you apply:

Organize tax returns, balance sheets, and profit-and-loss statements
Create a list of available collateral, including estimated fair market values

Run a UCC search (through your state’s website) to check for any filings against your business you might not know about

Understanding UCC-1 forms

The UCC-1 document includes:

Borrower name (must match legal business name exactly)
Lender name
Description of collateral

Always check that your collateral list matches what you agreed upon verbally with the lender, mistakes here can lead to future legal disputes.

How to remove a UCC filing

Once you’ve paid off the loan:

Request the lender to file a UCC-3 Termination Statement.
Follow up to ensure it’s actually filed (don’t assume it’s automatic).
Retain proof for your business records.

Keep this in mind: If a lender doesn’t remove an old UCC lien, it can linger on your credit profile and block future financing even though you owe nothing.

Alternative financing options without UCC filings

If you’d rather not tie up business assets, other funding paths exist:

1. Unsecured business loans: Rely on your creditworthiness rather than collateral. Good for businesses with strong revenue and credit profiles.

2. Revenue-based financing: Flexible repayment tied to a percentage of your monthly sales often doesn't involve UCC filings (but always double-check your contract).

3. Merchant cash advances: Provide quick funding based on future credit card sales. While MCAs don’t always involve UCC filings, some providers still file liens—so again, read your terms carefully.

Get started with Swoop

When choosing the right funding for your business, understanding how UCC loans work (and what’s hidden between the lines) is not something to overlook. Whether you’re leveraging equipment for better terms, safeguarding your future borrowing options, or simply comparing lenders, Swoop can help you find a solution that matches your goals.

Check available business loans now to explore your tailored financing options and unlock smarter, strategic funding without the guesswork.

Written by

Ashlyn Brooks

Ashlyn is a personal finance writer with experience in business and consumer taxes, retirement, and financial services to name a few. She has been published in USA Today, Kiplinger and Investopedia.

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