A UCC lien is a legal claim against personal property used as collateral for a loan, established under Article 9 of the Uniform Commercial Code (UCC). This security interest gives lenders priority rights over other creditors if the borrower defaults.
When a business takes out a loan using inventory, equipment, or accounts receivable as collateral, the lender files a UCC-1 financing statement with the state. This creates a public record of their security interest. The lien remains in effect until the debt is paid off or the lender releases it.
| Type | Description | Example |
|---|---|---|
| Purchase-money security interest | Lien created by the lender who provided funds to purchase the collateral | A bank finances a truck purchase for a delivery company |
| Non-purchase-money security interest | Lien created by a lender who did not provide purchase funds | A business uses existing equipment as collateral for a new loan |
Many confuse UCC liens with traditional liens on real estate. Unlike real estate liens, UCC liens specifically cover personal property and follow a different filing process. They also don't require court involvement to establish.
When my small business needed capital to expand operations, we used our manufacturing equipment as collateral. Our lender filed a UCC-1 form with our state's secretary of state office. This gave them a secured position if we couldn't repay the loan. After repaying the loan in full, the lender filed a UCC-3 termination statement to release their interest.
According to the American Bar Association, UCC liens are important for lenders to secure loans against movable property, providing a standardized system across all 50 states.