A security agreement is a contract that gives a creditor a security interest in collateral.
In plain language, the debtor promises that specific property can secure repayment or performance of an obligation. If default occurs, the secured party may have rights against the collateral.
Why it matters
Security agreements matter because they connect debt to property rights. The agreement helps define the collateral, the obligation secured, default rules, remedies, and the secured party’s rights.
The term is central to UCC secured transactions and commercial lending.
Where it appears
Security agreements appear in business loans, equipment financing, inventory lending, accounts-receivable financing, purchase-money transactions, and secured-party disputes.
Practical example
A lender finances a company’s equipment purchase. The company signs a security agreement granting the lender a security interest in the equipment.
How it differs from nearby terms
A security agreement differs from a financing statement. The security agreement creates or documents the security interest; the financing statement is usually a public notice filing.
It also differs from collateral, which is the property securing the obligation.
Related terms
Quick knowledge check
Question: What does a security agreement usually grant?
Answer: A security interest in collateral to secure an obligation.