You’ve just received your borrower’s quarterly financial statements. They are very good, but that’s not what grabs your attention. The cover letter shows the company has rebranded, with a punchy new logo and a name change to something more eco-friendly, sustainability-focused. You call up the LLC’s principal, and he is excited about the success of their new marketing campaign, which is already paying off in new business. All good, right?
It is great your customer’s business is doing well. But as a loan officer, you need to be thinking about more than the financials. You also need to focus on the bank’s security for the loan, and the perfection of your lien.
The chief security for the loan is the general business security agreement (GBSA) giving the bank a security interest in all of the business assets of the borrower company. You have perfected your security interest by filing a Uniform Commercial Code (UCC) financing statement with the central state filing repository. In Wisconsin, we file with the Wisconsin Department of Financial Institutions (DFI), but in other states the filing is typically with the office of the Secretary of State (SOS). The UCC statement names the borrower LLC as the Debtor, and the bank as the Secured Party. The filing office indexes that UCC statement under the Debtor’s name, and it is crucial that the name is accurate. Typographical errors have threatened the lien and the priority of security interests in too many cases where it is deemed to be “seriously misleading.” A legal change in name will require an amendment to the UCC financing statement, the same as if there had been a merger or a purchase and takeover of the company by another entity where the successor name is different from your borrower’s original name.
If the borrower LLC has been re-branded as a trade name or a d/b/a, and not as a legal change of name, there is no concern for the secured party. But if the organizational documents have been amended to legally change the name of the borrower, you must file an amendment to the UCC financing statement in order to protect your lien priority. Use the name of the entity found on the Articles of Incorporation, or Articles of Organization or comparable organizational formation document, as amended and as filed with the state of incorporation or organization. Obtaining an official copy of the organization documents from the DFI or SOS is the best practice.
If the borrower entity is not a registered organization, such as a general partnership in Wisconsin and most other states, use the name on the partnership agreement or similar organization document. Obtaining a certified copy of the document from the borrower will give you comfort, and filing under the names of all of the general partners as well as the partnership entity is the best practice.
Under the UCC as enacted in Wisconsin, a secured party has a period of four (4) months to file an amendment upon a change in the name of Debtor. If you do not file within that timeframe, the financing statement is not a perfected lien on any assets acquired beyond four months from the change of name. WI Stats 409.507(3)(b). Another secured party could file a financing statement naming the debtor under the new name, which could then trump your lien priority as to the new assets.
It is a good idea to search under both the old name and the new name when doing lien searches.
Loan documents typically require a borrower entity to inform the lender or obtain lender’s consent for any change in name, state of organization, or amendment to organizational documents. Therefore, a borrower should notify their lender of any such changes, or they may be in technical default of their loan documents.
Nonetheless, your borrower may not be focusing on that lender relationship or the loan covenants, especially if the change is marketing-driven as opposed to a more fundamental change in business like a merger. This is one reason it is important to pay attention to things like changes in address, letterhead and brands when communicating with your borrower customers. It could signal the need for action on your part to protect your lien.