A leasing company (or bank) will normally ask that customers fill out a form entitled UCC-1 Financing Statement. If you read a lease agreement you will notice that in most instances there is language indicating that the lessee (customer) is giving the lessor (leasing company) a security interest (a lien) in the equipment and software that is being financed. A financing statement is required by the Uniform Commercial Code, a group of laws which have been enacted in all states. The financing statement puts creditors on notice that the leasing company has a security interest. In this way, the leasing company tells the other creditors of the lessee that it has a right to the equipment and software superior to other creditors, i.e., if there is a payment problem, the leasing company has the right to obtain possession of the equipment and software and gets all proceeds from sale unite its claim is paid in full. These rights become very important in the event of a bankruptcy of the lessee.
From the standpoint of the customer/lessee, it is rather routine to be asked to sign a financing statement. The lease often gives the leasing company the right to sign the financing statement on behalf of the lessee. Thus, there is one less piece of paper for the lessee to sign. However, the lessee should make sure that it know what equipment it is giving a security interest in.
© LPI Software Funding Group, Inc.
593 Cricket Lane, Suite 200 Wayne, PA 19087
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February 27, 2006