What is a security agreement?

This is the document that confirms that a lender has a security interest in a loan against a specific item or collateral.

Where have you heard about security agreements?

If you have a mortgage or a car loan you will have signed a contract, and a clause relating to the security interest and agreement will be included.

What you need to know about security agreements.

Should a borrower or business default on the loan agreement the items mentioned in the security agreement can be repossessed and sold to repay the balance of the outstanding loan. Having such an agreement lessens the risk that the lender faces of losing their investment in the loan.

The security agreement outlines the conditions of repayment, including the schedule of payment dates and the amounts, plus any insurance requirements. It must be signed by the debtor and they must have rights in the collateral they're pledging at the time the agreement is executed. If a borrower were to pledge as collateral a car owned by a neighbour, and the neighbour does not know or agree, then the security agreement is ineffective.

Such security agreements are common for mortgages and business loans, but can also be used for patents or other intangible properties.