Security agreement is a document that provides the lender a security interest in a specified asset or property that is pledged as collateral. Security agreements often contain covenants that outline provisions for the advancement of funds, a repayment schedule or insurance requirements. The borrower may also allow the lender to hold the collateral for the loan until repayment. Security agreements may also pertain to intangible property, such as patents or receivables. And in the event that the borrower defaults, the pledged collateral can be seized and sold. A security agreement mitigates the default risk the lender faces.
The owner of the collateral seeks a secured party to ensure that it is free and clear of any lien or any charges. And the debtor shall maintain the collateral in good repair and see to it that it is safe. The debtor shall also insure the same for its full value. The debtor appoints secured party agent as its agent to file all financing statements which may be required, and vice versa. The debtor should also provide certificates of insurance to secured party. The debtor shall execute any documents which are requested by secured party and which secured party determines is necessary to perfect secured party’s lien. However, upon default, secured party shall have all the rights given to a secured party under the law.
Default shall be defined as:
- Any failure to comply with any covenant of the indebtedness secured by this agreement, including but not limited to a failure to timely pay as provided;
- The entry of a judgment, tax lien or other charge against the debtor which is not satisfied or superseded within thirty days of inception;
- Such other commercially reasonably reason that leads secured party to believe that its security is in peril.
Both parties should have a copy of the security agreement
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_____________________, referred to herein as SECURED PARTY, and _____________________, referred to as DEBTOR, agree:
______________, DEBTOR, grants a security interest in the following property to ____________, SECURED PARTY:
This security agreement is made to secure an indebtedness of ______________ to _______________, described as follows:
A _______________, in the original principal amount of $ ______, ____________ &___/100 Dollars) dated _______________.
This security interest is also given to secure any other debts which may be owed by ______________ to ____________ from time to time.
DEBTOR warrants to SECURED PARTY that the property in which a security interest is granted is subject to no other liens, charges or encumbrances and that there are no financing statements or other lien notices on file regarding debtor that might create a lien on the property secured herein.
DEBTOR shall maintain the collateral in good repair, ordinary wear and tear excepted, and shall insure the same for its full value. DEBTOR shall provide to secured party certificates of insurance. SECURED PARTY shall be named as a loss payee on a long form standard loss payable clause. Should DEBTOR fail to maintain such coverage, SECURED PARTY may obtain the same and DEBTOR shall pay SECURED PARTY for the same, together with interest at the highest legal rate on the amounts advanced by the SECURED PARTY.
Upon default, as is defined herein, SECURED PARTY shall have all of the rights given to a secured party under the Uniform Commercial Code, Article 9.
Default shall be defined as:
1. Any failure to comply with any covenant of the indebtedness secured by this agreement, including but not limited to a failure to timely pay as provided;
2. The entry of a judgment, tax lien or other charge against the DEBTOR which is not satisfied or superseded within thirty days of inception;
3. Such other commercially reasonably reason that leads SECURED PARTY to believe that its security is in peril.
DEBTOR shall execute any and all financing statements or other documents which are requested by SECURED PARTY and which SECURED PARTY determines is necessary to perfect SECURED PARTY’S LIEN.
DEBTOR appoints SECURED PARTY agent as its agent to file and any and all financing statements which may be necessary or required to perfect SECURED PARTY’s security interest, and DEBTOR authorizes SECURED PARTY to execute the same for DEBTOR.
This document represents the entire agreement between the parties, and there are no agreements or representations which are not stated herein. This agreement may not be modified unless it is in writing and signed by both parties.
For ____________, SECURED PARTY:
For ______________, DEBTOR:
This review list is provided to inform you about this document in question and assist you in its preparation. This is a straightforward security agreement to provide a creditor with collateral to secure the loan to debtor.
1. Make multiple copies. Each signatory should receive a copy. Be sure a copy is in the file of the actual transaction.