Perfect Your Security Interest By Filing Before A Closing

Commercial Lending Bulletin

In most commercial loan transactions, a lender will secure a loan by filing a Uniform Commercial Code (UCC) financing statement to perfect its security interest in the borrower’s personal property. A loan is perfected when the lender receives priority over other creditors wishing to obtain a lien against the collateral. Typically, the lender files the financing statement after the loan has closed. However, it is possible to file a financing statement pre-closing, provided the lender obtains the borrower’s prior written authorization. A lender may want to pre-file a financing statement if the lender is concerned that an intervening lien may be filed during the gap of time between when a UCC lien search was last conducted and the time that the loan closes.

Certain Criteria Must Be Met for the Security Agreement to be Perfected

Under Article 9 of the UCC, a lender may pre-file a financing statement against a borrower if the borrower authorizes filing the financing statement in a written authenticated record. If a lender pre-files a financing statement, then the UCC states that the security interest is perfected when it attaches. Attachment occurs once a lender obtains a fully executed security agreement, the value is given, and the borrower has rights in the collateral. The security interest will not be perfected - even though the UCC financing statement is on file - until all of these elements have been satisfied.

One method for a lender to obtain a borrower’s authorization to pre-file a financing statement is to include the authorization in the lender’s commitment letter that the borrower then signs. The commitment letter should state that if the loan does not close, then the pre-filed financing statement will be terminated at the borrower’s expense. Once a pre-filing authorization is signed, the lender may immediately file a financing statement in the appropriate filing office. However, before pre-filing a financing statement, a lender should discuss with the borrower whether pre-filing a financing statement would trigger an event of default with any of the borrower’s existing creditors.

Michael Smith, an attorney with Lerch, Early & Brewer, focuses on the structuring, negotiation, documentation, due diligence and closing of commercial lending transactions. For more information on pre-filing UCC financing statements, and other closing and documentation issues, contact Michael at (301) 657-0166 or

This content is for your information only and is not intended to constitute legal advice. Please consult your attorney before acting on any information contained here.


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