What is a Security Agreement Review?
A security agreement is a legally-binding contract that’s signed by a lender and a borrower. It’s drafted for the purpose of enabling the lender to take possession of the borrower’s collateral if the borrower doesn’t fulfill their payment obligations.
The agreement must contain certain key terms to ensure clarity for both parties.
Read the rest of this article for tips on how to review a security agreement, including key terms to check, and how a qualified lawyer can help you to review it for accuracy.
What are Core Terms to Review in a Security Agreement?
A security agreement usually contains key terms that you should carefully review.
- Payment terms. Check that the payment terms and schedules are clearly explained to prevent disputes.
- Collateral. Since security is a core component of the security agreement, it must be explained exactly what assets are used as collateral.
- Lender rights. To make the agreement clear, what the lender is allowed to do must be stated, such as if they can sell collateral to pay for the outstanding debt after a contract violation.
- Borrower obligations. All the borrower’s duties must be specified so that the borrower knows what is expected of them.
- Grant of security interest. The agreement must state that the borrower grants the lender the right to the collateral.
- Covenants. These rules that the borrower must follow should be verified, such as maintaining collateral insurance.
What are Tips for Reviewing the Security Agreement?
During your review of the agreement, make sure that you pay attention to other important aspects of the working arrangement. Here’s what to consider, from collateral descriptions to upkeep obligations.
Understand the Secured Financials
It’s important that the agreement specifies exactly what the collateral is securing, such as a loan. This provides clarity about all aspects of the agreement so that there’s no confusion over what it includes.
Check it Across Documents
When reviewing your security agreement, you should check that it references the loan amount and the debt that’s being secured. This ensures consistency and clarity for both parties.
Verify the Collateral
You want the agreement to be clear about if the arrangement covers tangible assets (such as machinery) or intangible assets (such as intellectual property). You want the descriptions about them to be detailed and specific. Avoid any ambiguous language that can create legal disputes.
Scrutinize Maintenance Obligations
The borrower will have to maintain the collateral so that it stays in great working condition. This obligation is important to include in the agreement to prevent issues or challenges, while ensuring that the secured assets maintain their value.
Specify Defaults
Actions or failures on the part of the borrower can trigger a default. The agreement must clearly explain these triggers and specify the lender’s enforcement rights. This gives the lender permission to take certain actions to remedy the default, such as possessing or selling the collateral.
Do You Need a Legal Review of a Security Agreement?
A security agreement is important to have reviewed by a qualified lawyer because these contracts involve your assets and finances.
There are various things that a lawyer can do during a review of your contract, such as:
- Explaining exactly what assets are at risk under the agreement so that you know what the lender’s rights are and when they can be enforced.
- Identifying any vague or broad provisions that could put you at risk, such as noting any additional assets that you didn’t want included in the agreement.
- Reviewing the borrower’s obligations, such as insurance, maintenance, and reporting duties. This ensures that the borrower is protected against accidental defaults.
- Assessing all default provisions so that it’s clear exactly what conditions could trigger the lender’s enforcement rights.
- Checking release provisions so that the lender releases the security when all obligations have been met.
- Alerting you to any hidden or surprise costs. They’ll review legal fees, valuations, insurance, and other costs.
- Negotiating with the other party. If there are any terms you’d like clarification on or you’d want to change, a lawyer can help you to discuss them with the other party.
- Making required revisions to the security agreement so that the final draft is clear and specific, as well as easy for both parties to understand.
Where to Find a Lawyer to Review Your Security Agreement
You might have decided that you want to hire a lawyer to review your security agreement, but you might be uncertain about where to find one. Using an online legal marketplace that connects you to experienced and reputable lawyers makes the process of finding a lawyer easy.
ContractsCounsel is one of the largest online legal marketplaces that grants you access to a curated network of vetted lawyers. Since all lawyers on the platform have experience in contract drafting and review, hiring one of them to review your security agreement will give you peace of mind about all its terms.
If you need to ask a lawyer on ContractsCounsel to review a security agreement, here is what to do.
- Go to the ContractsCounsel marketplace, where it’s free to post a request or project.
- Try to mention a few details about the project, such as why you’re seeking a professional legal review.
- Wait for bids. Without having to search for a lawyer, you’ll receive multiple bids from lawyers on the platform.
- Research the lawyers’ information. The platform provides a range of lawyer information, such as their experience, expertise, location, and client ratings for previous projects completed on the platform.
- After reviewing the lawyers’ information, select a lawyer to work with. Hire them to review your security agreement for a flat fee.
