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Anne_C, Attorney
Category: Business Law
Satisfied Customers: 2302
Experience:  Business litigator, 15 years' experience
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The company that I work for ocassionally loans valued ...

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The company that I work for ocassionally loans valued equipment (testers at over $1 million) to customers for evaluation purposes for a period of time that ranges from several months to one year. What type of document should we file and with whom to prove that we own the loaned equipment should the customer enter backruptcy or have other financial problems?

Dear Customer:

Thank you for asking JustAnswer for assistance.

The company that you work for will want to file a UCC-1 (Uniform Commercial Code lien against personal property) on the items that are loaned out. A UCC lien is filed with the Secretary of State for a state. The Secretary of State of some states actually have forms posted on line for a company to use. If the Secretary of State for your state does not have the form posted, and may have the forms for your state.

By the way, you didn't mention insurance, but given the expense of the items that are loaned out, you may want to have the company borrowing the equipment have the equipment listed on their Property Insurance.

Anne_C and other Business Law Specialists are ready to help you
Customer: replied 8 years ago.
Thank you, Anne. One of our employees is taking a business law class at the University of California. Her law professor said that the UCC1 is used in a financing transaction. Since we are not financing or selling the equipment to the customer at this point (it is strickly a loan to evaluate the equipment), he said that the UCC1 was not applicable. I'm looking for a second opinion. The loans are generally made in the State of California.
Thank you for further clarification.

Dear Customer:

I respectfully XXXXX XXXXX your employee's business law professor.

Here is a link to California's UCC-1 form, for reference:

A UCC-1 lien is used in financing transactions, but it is also used to signify that another entity has a security interest in personal property (as opposed to real property) that is located at another company.

Wen a company leases another company equipment (and I believe your loan of expensive equipment would be construed as a lease, even if you aren't charging for it), a UCC-1 lien is also appropriate. Please see section #5 of the California form.

Among other things, that puts other companies (banks and lenders, for example) on notice that your company actually owns the piece of equipment that is located at the company that has the equipment. Otherwise, it would be possible for the company you loan the equipment to use the equipment for collateral -- because there would be no notice that the equipment belonged to someone else. There are other reasons - for example, tax audits - that a UCC-1 lien would be desirable.

There are other types of liens that can be filed, but those would be filed with a County recorder's office, not the Secretary of State. That isn't going to put most people who would check that your company has a security interest in the equipment you are loaning.

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