Security agreement template

Securing assets and ensuring the protection of financial interests is paramount for lenders. Utilize this free security agreement template to simplify the process. 

Lenders and borrowers form the backbone of financial transactions, and these relationships are solidified with security agreements.

These agreements dictate the terms under which a borrower pledges an asset as collateral for a loan, laying the groundwork for a transparent and mutually beneficial relationship.

What is a security agreement? Why are they essential, when should they be used, what should they encompass, and how can they be managed efficiently? 

What is a security agreement?

A security agreement is a legally enforceable contract between a borrower and a lender, detailing the terms and conditions under which the borrower pledges collateral to secure a loan. The borrower is the individual or entity obtaining the loan, while the lender is the party providing the loan.

A security agreement typically addresses details such as the description of the collateral, the loan amount, repayment terms, rights of the lender in case of default, and the process for selling the collateral if the borrower fails to repay.

How does a security agreement work?

A security agreement becomes active once both the borrower and lender sign the document, indicating their acceptance of its terms. This agreement then governs their relationship, outlining their respective rights, duties, and responsibilities.

The security agreement usually specifies the collateral's description, its value, and the conditions under which the lender can take possession of it. If the borrower defaults on the loan, the lender can seize the collateral, sell it, and use the proceeds to recover the loan amount.

At its essence, the security agreement serves as a roadmap for the financial relationship, offering a transparent framework for both the borrower and lender.

When do you need a security agreement?

Security agreements are crucial whenever a loan is provided, and the lender requires collateral to secure it. This can range from personal loans secured by jewelry or electronics to business loans secured by inventory or equipment. Even for smaller loans, having a security agreement is wise to safeguard the lender's interests.

What should a security agreement template include?

Understanding what a security agreement is and its functionality is essential. But what should your security agreement template encompass? Here are ten common sections:

• Identification of parties. This section should identify the borrower and the lender, including their legal names, business structures, and primary places of business.
  
  
• Description of collateral. Detail the assets being used as collateral, including their value and any identifying characteristics.
  
  
• Loan amount and repayment terms. Specify the loan amount, interest rate, repayment schedule, and any penalties for late or missed payments.
  
  
• Rights of the lender. Outline the lender's rights, especially concerning taking possession of the collateral in case of default.
  
  
• Duration of agreement. State the start and end dates of the loan term.
  
  
• Default. Define what constitutes a default, such as missed payments or bankruptcy.
  
  
• Termination clause. Detail the conditions under which either party can end the agreement.
  
  
• Dispute resolution. Specify the process for resolving any disagreements, whether through negotiation, mediation, or litigation.
  
  
• Confidentiality. If either party will access confidential information, define the obligations to protect that information.
  
  
• Indemnification. Protect against losses or damages caused by a party’s actions.

Incorporating these elements in your security agreement template ensures clarity and protection for both the borrower and lender.

Traditional security agreement management process

Managing security agreements can vary based on the tools used and whether a pre-existing template is available. Typically, teams:

• Draft the contract in Word.
• Send it for internal review through communication platforms.
• Share updated versions via email.
• Negotiate terms and conditions.
• Convert to PDF.
• Use eSigning tools for finalization.
• Store the executed contract on shared drives.

This process can be cumbersome and disjointed. However, modern contract management platforms, like Juro, offer streamlined solutions, automating many of these steps and providing a unified platform for end-to-end management.

Security agreements are vital tools in the financial world, ensuring both lenders and borrowers have clear expectations and protections. With the right template and contract management tools, these agreements can be efficiently drafted, negotiated, and stored, simplifying the lending process for all involved.

Finalize security agreements swiftly with Juro

Juro’s AI contract collaboration platform empowers your team to draft, finalize, and oversee security agreements up to ten times quicker than conventional methods. 

With Juro, you can:

• Efficiently automate 75 per cent of standard contract administration. 
• Maintain oversight of contracts as quantities increase.
• Gain immediate clarity on your contracts’ data

To discover more about how Juro can expedite the process of creating, endorsing, and managing security agreements (and other contracts), request a demo below.