We would like to enter into “floorplan” financing arrangement with a customer where we provide a line of credit for them to purchase lawn mowers to resell. We want to avoid filing a purchase money security interest for each individual mower the customer purchases. However, we want to ensure that we have a priority security interest over other lenders’ blanket financing statements that cover “all assets.” Can we file a “blanket” purchase money financing statement to cover all the equipment that the customer will purchase for resale?

Yes, we believe that you may file a single purchase money financing statement to create a priority security interest in all of the mowers that your borrower will purchase for resale, subject to a five-year limit discussed below. However, we believe that you are creating a purchase money security interest in inventory (not equipment), which is subject to a host of requirements to perfect.

The Uniform Commercial Code (UCC) gives a lender priority over conflicting security interests when it has a perfected purchase money security interest (PMSI) in goods. “Goods” include both equipment that the borrower will use and inventory the borrower will resell, such as the mowers in this case.

In order to perfect a PMSI in inventory, a lender must file a financing statement before the borrower takes possession of the inventory. In addition, the lender must send an authenticated notice to any holder of conflicting security interests who has filed a financing statement covering the same inventory. The notice must describe the inventory and state that lender has or will acquire a PMSI in the inventory. The notice to conflicting interest holders will apply only to mowers that your borrower obtains as inventory within five years after the notice date.

Note that the extent to which your PMSI in the inventory extends to the proceeds from the sale of the inventory requires a fact-specific, in-depth analysis of multiple provisions of the UCC. Because of the complexities involved in perfecting a PMSI in inventory (and the proceeds from the sale of inventory), we recommend consulting with bank counsel before entering into a financing arrangement for inventory.

For resources related to our guidance, please see:

Uniform Commercial Code, 810 ILCS 5/9-103(b) (“Purchase-money security interest in goods. A security interest in goods is a purchase-money security interest: . . . (2) if the security interest is in inventory that is or was purchase-money collateral, also to the extent that the security interest secures a purchase-money obligation incurred with respect to other inventory in which the secured party holds or held a purchase-money security interest; . . .”)
Uniform Commercial Code, 810 ILCS 5/9-102(48) (“‘Inventory’ means goods, other than farm products, which: (A) are leased by a person as lessor; (B) are held by a person for sale or lease or to be furnished under a contract of service; (C) are furnished by a person under a contract of service; or (D) consist of raw materials, work in process, or materials used or consumed in a business.”)
Uniform Commercial Code, 810 ILCS 5/9-324(b) (“Inventory purchase-money priority. Subject to subsection (c) and except as otherwise provided in subsection (g), a perfected purchase-money security interest in inventory has priority over a conflicting security interest in the same inventory . . . if: (1) the purchase-money security interest is perfected when the debtor receives possession of the inventory; (2) the purchase-money secured party sends an authenticated notification to the holder of the conflicting security interest; (3) the holder of the conflicting security interest receives the notification within five years before the debtor receives possession of the inventory; and (4) the notification states that the person sending the notification has or expects to acquire a purchase-money security interest in inventory of the debtor and describes the inventory.”)
Uniform Commercial Code, 810 ILCS 5/9-324(c) (“Holders of conflicting inventory security interests to be notified. Subsections (b)(2) through (4) apply only if the holder of the conflicting security interest had filed a financing statement covering the same types of inventory: (1) if the purchase-money security interest is perfected by filing, before the date of the filing; or (2) if the purchase-money security interest is temporarily perfected without filing or possession under Section 9-312(f), before the beginning of the 20-day period thereunder.”)
Uniform Commercial Code, 810 ILCS 5/9-324(g) (“Conflicting purchase-money security interests. If more than one security interest qualifies for priority in the same collateral under subsection (a), (b), (d), or (f): (1) a security interest securing an obligation incurred as all or part of the price of the collateral has priority over a security interest securing an obligation incurred for value given to enable the debtor to acquire rights in or the use of collateral; and (2) in all other cases, Section 9-322(a) applies to the qualifying security interests.”)