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Loans are always an important part of growing one’s business. Loans may be secured or unsecured. Security Agreement When a loan is secured, it means that a surety is attached to the repayment of the loan and the lender shall not entirely be at loss in the event a default occurs.
For loan transactions there are two primary documents:
A promissory note is borrower’s written promise to repay the loan and a security agreement document, for a secured loan, providing an interest in an asset to the lender in event of failure to repay the loan.
Security Agreement is a document that provides the lender a security interest or a legal claim upon default in a specific property or asset that has been pledged as collateral. This mitigates the risk of default that the lender faces because in the event of a default, the collateral pledged may be sized and sold.
Security Agreement is usually drawn during a loan transaction. The borrower provides the lender with a security interest in certain assets which can be captured if the borrower defaults in making loan payments. The lender can then sell the acquired collateral to pay off the loan.
A default occurs when the debtor is not able to meet the schedule of debt repayment.
Collateral is a property or other asset that a borrower presents to the lender so as to secure the loan being taken.
The security agreement should essentially be in great detail and every term mentioned must be unambiguous. The agreement is regarding the security interest in a property or asset which it holds a great value and thus the terms that deal with it must be precise and exact.
The following details must be part of the security agreement:
The security agreement i.e. a secured loan brings a level of surety to the lender and reduces the risk involved in the transaction.
For the borrower, the security agreement builds creditworthiness for the future business transactions.
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