Legal Definitions - financing statement

A financing statement is a formal document filed in public records, typically with a state government office, to publicly announce that a lender or other party (known as the secured party) has a legal claim, called a security interest, on specific assets belonging to another person or business.

The primary purpose of filing a financing statement is to provide public notice to anyone who might consider buying or lending money against those same assets. This ensures that potential buyers or other lenders are aware of the existing claim, preventing them from unknowingly acquiring property that is already pledged as collateral for a debt. It essentially "tags" the asset in public records, making the lender's claim legally enforceable against most third parties.

• Example 1: Business Equipment Loan

  Imagine "InnovateTech Solutions," a software development company, needs to purchase new high-end servers and workstations. They secure a loan from "Apex Bank," using the new equipment as collateral. To protect its loan, Apex Bank files a financing statement with the state's Secretary of State office. This document publicly declares that Apex Bank has a security interest in InnovateTech's new servers and workstations. If InnovateTech later tried to sell this equipment to another company, or get another loan using the same equipment as collateral, a quick public record search would reveal Apex Bank's existing claim, preventing potential fraud or confusion.

• Example 2: Agricultural Machinery Financing

  "Green Acres Farm" decides to upgrade its operations by purchasing a state-of-the-art combine harvester through a financing agreement with "Rural Credit Union." Rural Credit Union, as the lender, files a financing statement. This public filing serves as a notice that the Credit Union holds a security interest in that specific combine harvester. Should Green Acres Farm face financial difficulties and attempt to sell the combine, or if another lender considers offering a loan against it, the financing statement ensures they are aware that Rural Credit Union has a prior claim on the equipment until the loan is fully repaid.

• Example 3: Inventory and Accounts Receivable Loan

  "Fashion Forward Boutique," a clothing store, obtains a revolving line of credit from "Citywide Bank" to manage its inventory purchases and cash flow. The loan agreement specifies that the boutique's current and future inventory, as well as its accounts receivable (money owed by customers), serve as collateral. Citywide Bank files a financing statement that broadly covers Fashion Forward Boutique's inventory and accounts receivable. This public filing alerts any other potential creditors or buyers that Citywide Bank has a primary claim on these assets. If the boutique were to seek another loan using its inventory as collateral, or if a supplier wanted to place a lien on the inventory, the financing statement would clearly show Citywide Bank's existing security interest, establishing its priority.