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Security Agreement

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SECURITY AGREEMENT

THIS SECURITY AGREEMENT is executed this the day of , 20 by and between (hereinafter "Buyer") and (hereinafter "Seller").

WHEREAS, Buyer has executed a Promissory Note to Seller, even dated herewith (the "Seller Note"), and

WHEREAS, Seller has required, as a condition of accepting said "Seller Note", that Buyer (among other things) execute this agreement to secure all obligations under the Seller Note.

NOW THEREFORE, in consideration of the foregoing recitals, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Buyer and Seller hereby agree as follows:

1. Liability Secured. This Agreement is entered into as security for the payment of the Seller Note in the amount of $ of even date, bearing interest at the rate of A.P.R. and payable as therein provided and a second note in the amount of $ due

2. Granting Clause. As security for the obligations under the Seller Note, the Buyer does hereby grant, pledge, transfer, sell, assign, convey and deliver to the Seller a security interest in, all of the right, title and interest of Buyer, in and to the personal property listed on Exhibit "A" hereto, which is incorporated herein by reference and all proceeds or replacements thereof (hereinafter collectively referred to as the "Collateral").

3. Warranties of Title, etc. The Buyer hereby: (a) covenants with the Seller, his successors and assigns that the Buyer is the lawful owner of the Collateral and has the right to sell, assign, convey and grant a security interest in the same and that the Collateral is free and clear of all encumbrances and security interests (other than that of the Seller); (b) warrants and covenants to forever defend the title of the Collateral unto the Seller, his successors and assigns against the claims of all person whomsoever, whether lawful or unlawful; (c) warrants that no financing statement covering any of the Collateral or any proceeds therefrom is on file at any public office; and (d) agrees, promptly upon request from the Seller to join with the Seller in executing one or more financing statements pursuant to the Uniform Commercial Code in form satisfactory to the Seller and to pay the cost of filing the same in all public offices wherever filing is deemed necessary or prudent by the Seller.

4. Taxes and Assessments. The Buyer agrees to pay all taxes, rents, assessments and charges levied against the Collateral and all other claims that are or may become liens against the Collateral, or any part thereof, and should default be made in the payment of the same, the Seller, at his option, may pay the same.

5. Insurance. For so long as this Agreement shall remain effective, Buyer agrees to maintain insurance coverage on all Collateral secured hereby and further agrees to have Seller named as loss payee on all such insurance policies.

6. Non-Waiver. It is agreed that no delay in exercising any right or option given or granted hereby to the Seller shall be construed as a waiver thereof; nor shall a single or partial exercise of any other right, power or privilege. Seller may permit the Buyer to remedy any default without waiving the default so remedied, and Seller may waive any default without waiving any other subsequent or prior default by the Buyer.

7. Events of Default. As used in this agreement, the terms "default" or "Event of Default" shall mean the occurrence of a violation or default in the observance or performance of any term, agreement, covenant, condition or stipulation contained or referred to in this agreement or the occurrence of an Event of Default under the Promissory Note.

8. Acceleration of Liabilities. Upon the occurrence of any Event of Default, the Seller shall have the right without further notice to the Buyer to declare the entire unpaid balance of the Seller Note immediately due and payable.

9. Secured Party's Right After Default. Upon the occurrence of an Event of Default under this agreement, the Seller shall have, in addition to any other rights under this Agreement or under applicable law, the right upon reasonable notice to the Buyer to take any or all of the following actions at the same or at different times: (a) to collect all Collateral in the Buyer' name and take control of any cash or non-cash proceeds of Collateral; (b) to enforce payment of any Collateral, to prosecute any action or proceeding with respect to the Collateral, to extend the time of payment of any and all Collateral, to make allowance and adjustments with respect thereto and to issue credits in the name of the Borrower; and (c) to exercise, in addition to all other rights and remedies of a Seller upon default under the Uniform Commercial Code. The net cash proceeds resulting from the exercise of any of the foregoing rights, after deducting all charges, expenses, cost and attorneys' fees relating thereto, including any and all costs and expenses incurred in securing the possession of Collateral and preparing the same for sale, shall be applied by the Seller to the payment of the Seller Note, whether due or to become due, and Buyer shall remain liable to the Seller for any deficiency.

10. Successor and Assigns. All covenants and agreements herein made by the Buyer shall bind it and its' respective successors and assigns, and every option, right and privilege herein reserved or granted to the Seller shall inure to the benefit of and may be exercised by the Seller's successors or assigns.

11. Modification, etc. No modification, amendment or waiver of any provision of this agreement, any note secured hereby, nor consent to any departure by the Buyer therefrom shall in any event be effective unless the same shall be in writing and signed by the Seller and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on the Buyer shall entitle either of them to any other or further notice or demand in the same, similar or other circumstances.

12. Notices. Any request, demand or notices provided in this agreement to be given by either party hereto to the other shall be conclusively deemed to have been given when the same shall have been deposited in the United States mail, postage prepaid, addressed to the party to whom such request, demand or notice is directed, at the following address, or delivered by hand to such party at such address:

(a) if to the Buyer:

(b) if to the Seller

13. Governing Law. This agreement shall be construed in accordance with and governed by the laws of the State of .

IN WITNESS WHEREFORE, each of the undersigned has executed this agreement on the day and year first above written.

BUYER:

SELLER:

STATE OF

COUNTY OF

PERSONALLY appeared before me, the undersigned authority in and for the county and state aforesaid, the within named who acknowledged to me that she signed and delivered the above and foregoing instrument on the date and year therein mentioned.

GIVEN under my hand and official seal, this the day of 20

NOTARY PUBLIC

MY COMMISSION EXPIRES:

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What a Security Agreement Is and When It Applies

A Security Agreement is a contract in which a borrower (debtor) grants a lender (secured party) a security interest in specific collateral to secure repayment of an obligation. It describes the collateral, the obligations it secures, and the rights of the secured party on default. Security Agreements commonly support loans, lines of credit, purchase-money financing, and vendor credit. The document is governed by Article 9 of the Uniform Commercial Code for most personal property security interests and by state law for perfection steps such as UCC-1 filings.

Why a Clear Security Agreement Matters

A well-drafted Security Agreement establishes priority, defines remedies on default, and reduces disputes about the scope of collateral. It also prescribes filing and notice steps needed to perfect the security interest and preserve lender rights against third parties.

Why a Clear Security Agreement Matters

Who Typically Prepares and Signs Security Agreements

Security Agreements are used by lenders, borrowers, and counsel across commercial lending, vendor finance, and asset-based lending transactions.

  • Commercial Lenders and Banks — Draft and enforce agreements to secure loans and protect collateral rights in insolvency scenarios.
  • Borrowers and Business Owners — Provide accurate collateral descriptions and ensure authorized signatories execute the agreement.
  • Corporate Counsel and Transaction Attorneys — Review language, confirm perfection steps, and advise on priority and enforcement strategies.

Each party’s role differs: lenders focus on enforceability and perfection; borrowers focus on obligations and permitted use of collateral; counsel ensures compliance with UCC and state requirements.

Essential Sections to Include in a Professional Security Agreement

A complete Security Agreement combines clear definitions, collateral descriptions, borrower promises, lender remedies, perfection instructions, and miscellaneous provisions that allocate risk and interpret the contract.

Grant Clause

Language that conveys a security interest in identified collateral from debtor to secured party and states the obligation secured; this clause creates the property right creditors rely on.

Collateral Description

A specific, sufficiently detailed description of collateral (by category and serial numbers where applicable) to avoid ambiguity and to support UCC financing statement descriptions for perfection.

Debtor Covenants

Promises by the debtor, including maintaining collateral, keeping records, not granting other liens without consent, and informing the secured party of changes that affect perfection or value.

Default and Remedies

Events that constitute default and the secured party’s remedies (repossession, sale, setoff), with commercially reasonable disposition procedures and notice mechanics.

Perfection Instructions

Steps required to perfect the security interest (e.g., filing UCC-1, possession, control for investment property), including the filing office and required filings.

Governing Law and Miscellaneous

Choice of law, waiver of jury trial if applicable, notice addresses, severability, and amendment procedures that affect enforcement and interpretation.

Required Information and Standard Data Elements

Debtor Name: Exact legal name
Secured Party: Lender legal entity
Collateral Types: General categories
Obligation Secured: Loan description
Effective Date: MM/DD/YYYY
Signature Blocks: Authorized signers

Step-by-Step: Completing a Security Agreement

Follow these sequential actions to prepare, sign, and perfect a Security Agreement.

  • 01
    Gather Entity Details: Confirm legal names and formation data.
  • 02
    Define Collateral: List categories and identifiers precisely.
  • 03
    Draft Agreement: Include grant, default, and perfection clauses.
  • 04
    Sign and Perfect: Execute and file UCC-1 or take possession where required.

How to Configure an Electronic Signing Workflow

Set up an e-signature workflow to capture signatures, track execution, and trigger perfection tasks.

Field Configuration
Signer Order Specify sequential or parallel signing
Authentication Email link, SMS code, or KBA
Required Fields Make collateral fields mandatory
Post-Sign Actions Auto-generate UCC-1 task or notification

Digital Signing and eSubmission Considerations

Ensure the platform supports legal standards, audit trails, and the export formats needed to file or record collateral documents.

  • Document Formats: PDF and DOCX supported
  • Audit Trail: Timestamps and IP logging
  • Integrations: CRM and cloud storage

Use a platform that provides secure storage, exportable signed PDFs with certificates, and integrations to automate UCC-1 filings or legal review workflows.

Where to Send, File, and Record the Agreement

After execution, determine the appropriate recording and distribution steps to perfect the security interest and notify affected parties.

  • Signed Agreement Copy: Deliver executed copy to secured party and debtor
  • UCC-1 Financing Statement: File with state SOS or central filing office
  • Possession or Control: Take control for certificates and investment property
  • Notice to Third Parties: Send required notices of lien or assignment

Key Timing and Processing Expectations

Timing affects priority and enforcement; take prompt action to avoid loss of rights.

Effective Date Entry:

Enter MM/DD/YYYY upon execution

UCC-1 Filing:

File promptly to establish priority

Certificate Possession:

Take possession before transfer deadlines

Notice Periods:

Comply with any contractually required notice windows

Recording Delays:

Allow processing time with SOS offices

Common Drafting and Filing Mistakes to Avoid

  • Using an incorrect debtor legal name that defeats UCC filing linkage.
  • Vague collateral descriptions that permit debtor disputes or rejection by filing offices.
  • Failing to file a UCC-1 or delaying perfection until a competing creditor files.
  • Not documenting continuing or after-acquired property intentions when intended to secure future assets.

Practical Risks and Consequences of an Incorrect Agreement

Loss of Priority: Competing liens may take precedence
Unenforceable Lien: Court may decline remedies
Increased Litigation: Higher dispute and defense costs
Regulatory Exposure: Violation of agency rules possible
Tax and Reporting: Incorrect reporting or withholding
Operational Delay: Slower collections and recoveries

Who Can Sign a Security Agreement

Authorized Officer

A corporate officer with delegated authority should sign for a business debtor; include printed name, title, and confirm board or resolution authorization to avoid capacity challenges.

Individual Debtor

An individual must sign in their personal capacity. For married debtors, state law may require spousal joinder or waiver for property in community property states.

Typical Use Cases and Realistic Scenarios

Two practical scenarios illustrate how Security Agreements are used to secure obligations and preserve lender remedies.

Vendor Financing Example

A small equipment vendor extends a line of credit to a purchaser and takes a security interest in the equipment

  • Collateral identified by serial numbers and models
  • After default, the vendor repossessed equipment following commercially reasonable sale procedures and applied proceeds to the outstanding balance, reducing loss exposure.

Working Capital Loan

A borrower grants a security interest in accounts receivable to secure a revolving loan

  • UCC-1 filed in the debtor’s state to perfect priority
  • The lender monitors aging receivables and enforces collection controls to limit dilution and preserve collateral value.

eSignature Platform Comparison for Executing Security Agreements

Compare core pricing and capability rows relevant to executing and storing Security Agreements. signNow is listed first per platform comparison conventions.

signNow DocuSign Adobe Sign PandaDoc HelloSign
Starting Price $8/user/mo $15/user/mo $14/user/mo $19/user/mo $15/user/mo
Free Trial Yes, 7-day free trial Varies Varies Varies Varies
Bulk Send Yes Yes Yes Yes No
Audit Trail Yes Yes Yes Yes Yes
HIPAA Compliant Yes Yes Yes No No

Practical Tips for Accurate and Efficient Completion

Follow these best practices to reduce defects, speed perfection, and simplify enforcement.

Verify Legal Names and Capacities
Confirm debtor and secured party legal names against formation documents. Obtain corporate resolutions or authority letters for entity signatories to forestall capacity challenges later.
Use Specific Collateral Descriptions
Describe collateral with sufficient detail for commercial certainty and UCC filing standards. Include identifiers such as serial numbers and VINs when available.
Coordinate Filing and Possession
File the UCC-1 financing statement promptly and, where required, take possession or control of collateral to perfect the security interest.
Keep Execution Records
Retain executed PDFs with audit trails, certificate of completion, and associated notices to evidence perfection and support enforcement in disputes.

Frequently Asked Questions About Security Agreements

Answers to common questions about drafting, perfection, signatures, and enforcement for Security Agreements.


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