Is it possible to secure a loan with livestock? Absolutely. When securing a loan with livestock or any other “farm product” under the Uniform Commercial Code (the “UCC”), the statutory framework that underscores security interests and liens in agricultural financing can be confusing among lenders and secured parties. Governed by Article 9 of the UCC, “Farm products” include livestock, livestock and the products of crops or livestock in their unmanufactured state.
A bank or secured party will ordinarily perfect its security interest in farm products by filing a UCC-1 financing statement. The financing statement can describe the farm products specifically or by type, category or any other method permitted by Article 9, including a generic “all assets” description.
However, if the loan is providing purchase money for purpose of livestock, which is known as a purchase money security interest or “PMSI”, additional requirements will apply. The secured party must file its financing statement before the debtor receives possession of the livestock. In addition, the secured party must send a notice of its PMSI claim to the holder of any conflicting security interest in the livestock. While these requirements are very similar to those for a PMSI in inventory, the livestock PMSI notice has a much shorter effective period: six months instead of five years for an inventory PMSI notice.
Agricultural Liens vs. UCC Security Interest
An agricultural lien is different than a security interest created under the UCC, and the two types of interests are often confused. The agricultural lien arises under lien statutes, which is a different process, and not typically used by a bank or other commercial lender. Instead, an agricultural lien is more often used by suppliers. While both the UCC security interest and the agricultural lien secure an obligation for payment, a security interest under the UCC emerges through the agreement of the parties, while the agricultural lien is triggered by specific conditions specified by state statute, with or without the consent of the debtor.
Under Article 9 of the UCC, an agricultural lien does not require actual possession of the farm products, and its perfection and priority will fall under the umbrella of Article 9.
With an agricultural lien, the supplier will need to satisfy additional statutory requirements that do not come into play with a UCC security interest. These requirements vary by state statue, but typically include notifying specified parties and filing local notices as the statute provides. Often, to perfect an agricultural lien, a claimant must satisfy certain additional requirements and also file a UCC-1 financing statement.