UCC Clearance

Before contacting a factoring company, check to be sure your business assets are clear for financing. In order to allow for invoice factoring the business accounts receivable must be free of any collateral type liens. This would include any existing lines of credit, term loans, SBA loans, and occasionally certain equipment loans. The gate keeper of business collateral is the UCC-1 financing statement. (read https://www.ccassociates.com/ucc1.html) Any lender, as a normal course of business will file a UCC-1 and assign all the tangible assets of your company. This could potentially lead to, six months or a year later when you are looking for more operating capital you will have trouble. Contacting a factoring company and asking to finance the accounts receivables, one of the first checks to be done is whether there are any existing UCC filings. There are ways to deal with the UCC. One is to pay off the outstanding loans with the proceeds of the initial invoice factoring advance, the other is to negotiate an inter-creditor agreement with the first position lien holder. Either way, the factoring company needs to know they own what they finance.