A UCC (Uniform Commercial Code) filing is a legal notice a lender files with the secretary of state when they have a security interest against one of your assets. It gives notice that the lender has an interest, or lien, against the asset being used by you to secure the financing.
The UCC-1 protects the interests of the lender in the case of borrower default or bankruptcy, in which the assets would be foreclosed on, seized, or sold off. It will be active for five years, which means that a lender will need to renew the filing to keep their collateral protected for loan terms extending longer than five years.
A factoring company will file a UCC-1 on your receivables since those are the assets that protect their funding’s for accounts receivable finance. A factor will usually require being in “1st position” on these assets, meaning no other lender can have already filed a UCC-1 using the accounts receivable as collateral.
If your factoring balance is paid off and you no longer wish to fund additional invoices you will be able to request for this lien to be removed and open you business up for other types of financing.