Back to Basics: Two Primary Types of UCC Filings
In compliance with Article 9 of the Uniform Commercial Code, trade creditors can achieve a properly perfected security interest with a sound security agreement and the proper filing of a UCC-1 Financing Statement.
But, Article 9 can be difficult to digest. So, today we’ll break down the information into bite-sized pieces! Let’s review two basic types of secured transactions – Blanket and Purchase Money Security Interest (PMSI) – and the benefits of each!
Types of Filings
A Blanket Filing gives the creditor a security interest in all its debtor’s assets, on a non-priority basis. This eliminates potential conflict with the customer’s primary lender, such as a bank.
With this type of filing, payout priority is determined by first in time, first in right.
Who uses Blanket Filings? Blanket Filings are most common when a creditor is providing financing, selling services, or when a debtor “consumes” rather than stocks the goods provided. For example, a uniform company selling to hospitals and a factoring business providing financing could both benefit from this type of filing.
Purchase Money Security Interest (PMSI)
A PMSI filing provides similar benefits as the Blanket Filing with the addition of priority in the repossession of specific identifiable goods, such as inventory or equipment.
According to Article 9, a PMSI in Inventory refers to securing collateral that’s defined as “goods, other than farm products,” which fall under one of the following:
– Are leased by a person as lessor;
– Are held by a person for sale or lease or to be furnished under a contract of service;
– Are furnished by a person under a contract of service; OR
– Consist of raw materials, work in process, or materials used or consumed in a business.
PMSI in Inventory is applicable to a creditor supplying goods to a debtor for the purpose of those goods being resold.
Who Uses a PMSI in Inventory? For example, an electronic manufacturer sells wireless headphones to a media retailer who, in turn, sells the headphones to their customers.
PMSI in Equipment refers to securing collateral defined as “goods other than inventory, farm products, or consumer goods.” The equipment provided must be used in the course of the debtor’s business.
Who Uses a PMSI in Equipment? A PMSI in Equipment filing is applicable to a creditor who supplies items such as medical exam tables, printers or commercial refrigerators – equipment your debtor would keep for their own use and not resell to customers.
We’re Here to Help!
In the event of customer bankruptcy or default, it is critical you’ve taken steps to properly perfect your security interest. If you’re interested in learning more about the UCC process or need assistance determining which type of filing best fits your needs, let NCS assist you! Contact us today at 800-826-5256 or email SecureYourTomorrow@NCScredit.com.