What is Security Agreement Drafting?
A security agreement is a legal contract between a lender and borrower. It enables a lender to seize a borrower’s collateral if the borrower doesn’t repay a loan. This agreement must include specific terms and conditions to ensure accuracy and fairness.
Read the rest of this article to explore how to draft a security agreement, such as what core components are required and how a lawyer will help you navigate the agreement-drafting process.
What are Common Terms in a Security Agreement?
A security agreement should include key terms such as the following:
- Payments. The agreement must specify a clear repayment schedule.
- Collateral. There must be clarity about what property or assets will be used as security under the agreement.
- Default. This clause explains what constitutes a default on loan terms and causes the lender to seize the collateral.
- Grant of security interest. This basically states that the borrower grants the lender a security interest in the collateral.
- Lender rights. The lender’s rights must be stated, such as if they can sell the collateral to cover the debt.
- Borrower duties. The borrower’s obligations must be outlined, such as keeping property insurance for the collateral.
- Signatures. The agreement must be signed by both parties to be valid.
What are TIps for Drafting a Security Agreement?
When drafting a security agreement, there are specific things to bear in mind. Here’s a rundown of some important ones.
Detail the Security
The security or collateral in the agreement can include real estate or anything else that the lender considers appropriate for the loan repayment. Detail the assets properly so there’s no confusion over what can be possessed in the event of a payment default.
For property being used as collateral, a description would include a legal description and physical address.
Describe the Secured Financials
You should explain exactly what the collateral is securing, such as if it’s a loan or revolving line of credit. Including a broad future advances clause enables the same collateral listed in the agreement to secure future loans without requiring a new agreement.
Explain Insurance Requirements
Depending on the agreement, the contract might include an insurance clause for how the collateral can be insured to protect it against damage. Insurance is important to consider as it protects the lender against financial losses.
Mention Defaults
You should specify how defaults work and what their consequences are. For example, if you’re dealing with a real estate loan, missing payments will be considered default. Other events that can trigger default include filing for bankruptcy or providing false information, for example.
The agreement should also specify remedies that the lender can use to recover the money.
Clarify Borrower Duties
The borrower’s responsibilities must be stated clearly so there’s no uncertainty. This can include explaining that the borrower will make loan payments on time, keep collateral in good condition, and maintain insurance.
Check it Against Related Documents
For consistency, your security agreement must be coordinated with related documents. In real estate, these documents could include promissory notes, guarantees, and/or a loan agreement so that there’s no doubt over which debt is backed by the collateral.
How Does a Lawyer Draft a Security Agreement?
Since security agreements need to be precise and accurate, it can help you to hire a lawyer to draft yours for you, especially if you’ve never written one before.
A lawyer will assist you by:
- Ensuring both parties are properly named with accurate legal information. This provides accountability. A lawyer will know what details to include, such as matching a business’s name to what’s mentioned on its formation documents instead of using a trade name.
- Describing collateral properly with accurate legal descriptions.
- Stating which loans or financial obligations are secured by the collateral so that there’s no confusion between parties.
- Clarifying what constitutes a default in the specific agreement, such as missed payments, as well as what the lender’s remedies will be.
- Confirming and explaining both parties’ duties and roles, such as regarding insurance and maintenance.
- Complying with all relevant laws, regulations, and jurisdiction requirements.
- Verifying all details prior to execution, such as signing the document.
- Reviewing a security agreement that’s been drafted so that you can feel confident its terms are clear and specific.
Where to Find a Lawyer for Security Agreement Drafting
If you need to hire a lawyer to draft a security agreement for you from scratch, you don’t have to take lots of time out of your schedule to find one who’s reputable. On online legal platforms, you can access a network of qualified lawyers who are experienced to help you from the comfort of your home.
ContractsCounsel is one of the largest online legal marketplaces that connects you to a curated network of vetted lawyers. Since all the lawyers on the platform have experience in contract drafting and review, they can ensure your agreement is drafted with clarity.
Here are the steps to follow to request that a lawyer drafts your security agreement.
- Go to the ContractsCounsel marketplace.
- Post your project for free. Include a few details to help you find the most suitable lawyer, such as why you require the agreement.
- Receive multiple bids from lawyers directly on the platform who have the experience and are ready to help you.
- Review the lawyers’ profiles. Go through the platform’s lawyer data, such as their location, client ratings for previous projects, expertise, and credentials, to help you hire the most suitable lawyer.
- Connect with a lawyer and hire them to draft your security agreement for a flat fee.