THE SIGNIFICANCE OF THE BLANKET UCC
Remember last month's article that talked about a blanket UCC? This month's article discusses the consequences of a blanket UCC for the borrower.
Remember, a blanket UCC is a lien on all personal property of the borrower. This includes accounts and accounts receivable. The problem for a borrower is that it will impact its ability to get future loans and, in particular, to borrower working capital loans or lines of credit, which are typically secured by liens on accounts receivable.
It is much more conservative for a borrower to pledge specific types of collateral, particularly the type of collateral being acquired from the funds being advanced, but that may not be possible. Many SBA loans require blanket pledges and individual bank's lending requirements will vary.
Remember, the UCC-1 Financing Statement gives notice to other creditors (and determines priority among conflicting liens), but it is the security agreement where a borrower agrees what property it is specifically pledging. Be very careful in reviewing and signing security agreements as to what types of collateral are being pledged. For example, if you only give authority to file a UCC on a specific piece of equipment (like an MRI machine or a copier), that UCC will only be valid as to that collateral pledged in the security agreement.
The Uniform Commercial Code is a complicated area of the law. If you have any further questions, please contact your attorney or feel free to contact me.
Ms. Drury is a Shareholder in the firm of Marquis Aurbach Coffing in Las Vegas, Nevada, and is chairperson of their transactional department. Drury was named a Leader in the Field of Real Estate for 2011 and was also named by Best Lawyers in America in the specialties of Corporate Law and Real Estate Law for 2011. Ms. Drury's practice focuses on transactions, with an emphasis in real estate. She documents and oversees entity formation, land and business acquisition, construction agreements, loans (construction and permanent), general operational and contract needs, and the ultimate sale of land or improved properties and businesses. Ms. Drury serves on the Executive Committees of the State Bar of Nevada's Real Property Law Section and Business Law Section, which, among other things, draft statutes for consideration and adoption by the legislature of the State of Nevada. Prior to joining Marquis & Aurbach, Ms. Drury served as Associate General Counsel at Station Casinos, Inc. Ms. Drury has a Bachelor of Arts in International Relations and Print Journalism from the University of Southern California, with a minor in Business Administration. She has a Juris Doctor Degree from the University of California, Hastings College of the Law.