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How to Secure Credit with UCCs as Default Rates Rise

Kristin Alford March 30, 2026

UCC Article 9 Credit Risk Management UCC Financing Statements Bankruptcy

How to Secure Credit with UCCs as Default Rates Rise

What's Happening with Rising Business Defaults

If you extend credit to other businesses, the economic landscape right now is worth paying attention to.

According to Fitch Ratings, 9.2% of U.S. private credit borrowers defaulted in 2025, the highest rate ever recorded, up from 8.1% the year before. Fitch recorded 11 default events in February 2026 alone, compared to a monthly average of 5.9 throughout 2025. That trend is reflected more broadly too, according to the Administrative Office of the U.S. Courts, total business bankruptcy filings rose 7.1% in the year ending December 2025.

Putting the Data in Context

These figures come from the private credit market, which refers to loans made by institutional lenders (like private equity-backed funds) to mid-size businesses outside of traditional bank financing. While that's a different lending structure than a typical trade credit relationship, the businesses borrowing in the private credit market are often the same businesses buying on credit terms from suppliers and vendors. When those companies come under financial pressure, the effects move upstream and trade creditors are frequently among the first to feel it.

What Does a Rising Default Rate Mean?

Rising default rates signal that more businesses are struggling to meet their financial obligations. For trade creditors, that means a higher probability that a customer may be unable to pay, and the consequences depend largely on how your credit relationship is structured.

Are Small Businesses at Greater Risk of Defaulting?

Yes. Fitch's data shows a significant gap based on company size. For companies with more than $100M in annual earnings, the default rate in 2025 was 4%. For companies with less than $25M in earnings, it was 15.8%, nearly 1 in 6.

The broader picture tells the same story. Inc. Magazine reported that small business closures increased by 30% over the summer of 2025 compared to the same period the prior year. And according to Epiq's annual bankruptcy data, filings under Subchapter V, the bankruptcy chapter specifically designed for small business reorganization, grew 11% in 2025.

What’s Causing Risk for Small Businesses

A big driver is floating-rate debt. Most small business loans are tied to variable interest rates, meaning monthly payments move with interest rates. When rates stay elevated, cash flow gets squeezed and businesses with the least cushion feel it first. As NYU corporate bankruptcy specialist Edward Altman told Inc., small and medium-sized firms operate at very vulnerable margins, with costs increasing faster than they can pass them along to customers.

What if I have Small Business Customers?

If a meaningful portion of your customer base is made up of smaller businesses, that risk profile is worth factoring into how you think about your credit relationships.

Secured vs. Unsecured: Creditor Priority in Bankruptcy

When a customer files for bankruptcy, not all creditors are treated equally. Secured creditors, those with a legal claim to specific assets, are prioritized. Unsecured creditors, which includes most trade vendors extending credit without a formal security interest, are typically last in line and in many cases recover very little. How you're positioned going into a default matters as much as whether a customer defaults at all.

How to Become a Secured Creditor with UCC Filings

One of the most practical tools available to trade creditors is the UCC-1 Financing Statement. A UCC filing is a document filed with the Secretary of State that gives public notice of your security interest in a customer's assets, including inventory, equipment, or receivables.

In plain terms, it moves you from unsecured to secured. A few things worth knowing:

Obtain a Signed Security Agreement

The process requires your customer to sign a Security Agreement, which grants you a legal interest in the specified collateral. Once that's in place, you file the UCC-1 and your security interest is on the public record. The filing is effective for five years and can be continued from there.

When to File

Timing matters too. For most filing types, you should file before shipping goods to your customer. Waiting until a customer is already showing signs of distress is too late to establish priority.

Reduced Risk for Sales

UCC filings aren't just a defensive tool either. They can open up new credit opportunities, giving you the security to extend credit to customers you might otherwise pass on.

Analyzing Your Current Credit Exposure

Given the current environment, it's a reasonable time to take stock of where your credit relationships stand:

Which accounts represent your largest open exposure?
Do any of your customers operate in rate-sensitive or consumer-facing industries?
Are you seeing early signals like slower payments or requests to restructure terms?
Do you have UCC filings in place for your most significant credit relationships?

You don't have to overhaul everything at once. But understanding your exposure and knowing your options is a good place to start.

If you're thinking about implementing a UCC program, NCS Credit's UCC filing services are a good place to explore next steps.

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