How Competitors Utilize UCC Financing Records & How to Protect Clients

Discover how competitors can utilize public UCC financing records to gain a competitive edge, along with how to better protect your client lists with our guide.
Posted by uptownguy

Almost half of all small businesses in the US have applied for additional business funding in the past year. For most business owners, this means seeking a business loan, either for the first time or on top of existing loans.

For many business owners, in order to get a business loan, to make their entrepreneurial dreams come true, they have to put up collateral. Often, this is personal collateral.

After extending a loan, secured by collateral, business lenders file UCC financing statements, typically to the secretary of state in the place where they operate.

As a lender, a UCC financing statement is both a blessing and a curse. Read on below to learn more about why UCC filing is important, and how to do it the right way, so you don’t give competitors an edge over you. 

What is a UCC Financing Statement?

Almost all business loans in the US are secured by collateral. Collateral gives the lender a sense of security. If the borrower defaults on the loan, unable to make any further payments, the lender can seize the collateral. 

They can then sell the collateral in order to recoup some of the funds they lost on the loan. But oftentimes, a borrower will use a certain asset as collateral on multiple loans.

The collateral might be business property or equipment, vehicles, or personal home. If the collateral is used on multiple loans, and the borrower defaults, who gets to seize the collateral first?

That’s where a UCC financing agreement comes into play. UCC stands for Uniform Commercial Code. It governs business financing deals across the country. The uniform code is adopted and enforced across every state.

When a lender completes a business loan that utilizes collateral, they file a UCC financing statement with their local secretary of state. The statement describes the loan details and acts as a lien on the collateral. 

With a UCC statement in place, your position on the collateral is public information. So if the borrower gets another loan at some point, gets a second lien on their collateral, and defaults, your position is still first.

That means you get to seize the collateral in order to satisfy your loss before anything goes to the second lien holder. These statements avoid conflicts between lenders who may be trying to seize the same assets due to a defaulting borrower. 

How Competitors Use UCC Web Services

The problem with UCC statements is that they are public information. When a loan is transacted, the UCC statement needs to be filed with your state agency immediately. 

But just like residential real estate transactions are public, searchable information, so too are business financing deals. So for lenders who make a lot of business loans, every UCC statement essentially showcases your clients (debtors) to the public. And while most people don’t care, your competitors do.

Other lenders are always looking for ways to get new business leads. And if you’re showing off your clients, who are in clear need of funding, you can bet they are going to market to those people, since they will likely need another loan in the future. 

It’s very common for lenders to target the clients of other lenders using the public information found in the UCC.

UCC Filings for Your Benefit

But these UCC filings act as a double-edged sword. Because you can look up the public records of other lenders that you compete with, and get detailed information about their clients through their recent UCC statements.

So you’d be able to find new leads, and grow your business, by outsmarting the competition. 

The data available with most UCC statements is very detailed, providing you with a lot of information about the loan, the collateral pledged, and what other financial interests they have with other parties.

This gives you the chance to craft very specific marketing messages to individual prospects. And the results can be much more cost-effective than targeting a cold audience. 

How to Protect Your Clients Using UCC Services

So what should you do if you want to protect your client list and prevent competitors from trying to steal your customers? There are a few basic steps to take. 

File UCC Statements Under a DBA

One of the simple and cheap options for maintaining privacy, and preventing your competitors to see your clients is to file your UCC statements under a separate DBA.

Most lenders will just use their standard business name when filing statements. But this makes it very easy for your local competitors to find your statements and swoop up your clients. Or at least see all of your recent transaction data.

Creating a separate DBA name, to mask your formal business name, can make it so your competitors don’t know which clients are yours. However, while this solution is fast and cheap, it isn’t practical for those who process tons and tons of loans and statements.

Using a UCC Representative

The better option for protecting your list of borrowing clients is to use UCC web services that act as secured party representatives. You’ll still file the UCC statements as normal. But a third-party company will use their name on the statement, so you don’t have to list your own business name on it. 

They simply represent you on the form. When inquiries are made to the lender on the statement, your representative will forward those to you. They act as a legal middleman, which allows you to secure your valuable, proprietary information and list of clients. 

Along with acting as a representative, companies that provide UCC services can help you with other aspects of your business, such as managing your UCC portfolio, performing UCC lien searches, and filing UCC statements faster and more efficiently. 

Stop Helping Your Competitors 

The business lending landscape is a lucrative one. Lenders stand to make money whether their clients are successful, and can pay back their loans, or are unsuccessful, and collateral needs to be seized.

And UCC financing statements provide you with the security you need to make more loans. Just make sure to protect your list of clients, as you don’t need to be doing your competitors any favors.

Looking for more tips like this? Head over to our blog now to keep reading. 

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