What is the significance of filing a financing statement?

• A. It perfects a security interest and gives the lender or lessor priority over other creditors in case of default.
• B. It indicates the loan is insured.
• C. It increases interest rates on the loan.
• D. It cancels the loan.

Answer: (A)

The main point is that filing a financing statement serves as a notice to perfect a lender’s security interest in the debtor’s collateral and establish priority among creditors. By filing (typically a UCC-1 with the appropriate state office), the lender makes their lien visible to other potential creditors. This perfection is what determines who gets paid first if the debtor defaults or enters bankruptcy. Without filing, the security interest may remain unperfected, risking lower priority or loss to other creditors that have perfected interests. Filing does not insure the loan, raise interest rates, or cancel the loan; it specifically protects the lender’s rights in the collateral and clarifies their standing in repayment proceeds.