Security Agreements for Business Loans

Although there is no specific language or terminology that must be included in a Security Agreement, the following is a list of key provisions to consider:

• Identity of parties — debtor and secured party, including full names and addresses
• Description of collateral
• Property of security interest — first lien? second lien?
• Identify owner of collateral
• Value to be given by secured party to debtor
• Provisions regarding preservation of collateral, including secured party's right to inspect collateral; debtor's obligation to make it available for inspection by secured party; debtor's duty to protect, maintain, and repair collateral; debtor's right to sell, exchange, or dispose of collateral, etc.
• Limitations on secured party's right to assign security interest and debtor's right to receive notice of assignment
• Default provisions; rights to foreclose
• Provision for expiration of agreement on debtor's satisfaction of debts and provision that expiration of agreement terminates secured party's security interest
• Signatures of debtor (required) and secured party (if desired)

Perfecting by possession or filing a financing statement

If the debtor defaults on his or her obligation under the Security Agreement, the secured party must look to the collateral to satisfy the obligation. To obtain the maximum protection against the claims of third parties with possibly conflicting interests in the collateral, the secured party must perfect his or her security interest in the collateral.