Business Glossary

loan that is collateralized by assignment of rights to property and a security interest in personal property or real property taken by the lender. Amortgage borrower (the mortgagor) gives the lender a mortgage in the property financed. A business loan can be secured by cash, inventory, receivables, marketable securities, or other acceptable collateral. In event the borrower fails to repay according to the original credit terms, the lender can take legal action to reclaim, and sell, the collateral. Contrast with unsecured loan, which is backed only by the borrower's promise to pay-a promissory note.

security interest in collateral securing a debt protected from claims by third parties. To properly file a lien and take a security interest in property owned by the borrower, a lender must file the lien with the appropriate legal authority. Perfection of a lien on real estate is accomplished by recording the mortgage deed of trust in public land records of a municipality, such as a town clerk's office.

Perfecting a lien on stocks, bonds, or other assets owned by the borrower (known as personal property, as opposed to real property, or real estate) occurs when the lender files a financing statement listing the type of collateral securing the loan, and its location, in a designated filing place, generally the office of the Secretary of the State or a county recorder's office.

The lender's financing statement gives the lender priority status ahead of creditors filing subsequent liens, and is valid for a five-year period. The filing date is recorded, and the lender's documents are assigned a file number. These documents contain a detailed record of the collateral pledged or taken by the lender, establishing the lender's claim against assets by the borrower in event that the borrower defaults or goes bankrupt.