What is a Security Agreement?

• A. It is a separate document that covers unrelated matters
• B. It is attached to the Promissory Note and gives the secured party a legal claim to collateral
• C. It applies only to intangible assets
• D. It is the agreement that sets the loan's interest rate

Answer: (B)

A Security Agreement is the contract that creates the lender’s lien on the borrower’s assets to secure repayment of the loan. It is a written, signed agreement between debtor and secured party that describes the collateral and establishes the security interest in favor of the lender. This document is often attached to the Promissory Note or otherwise referenced, and it is what gives the secured party a legal claim to the collateral if the borrower defaults. The collateral can be tangible or intangible, and while the loan terms (like interest) may appear in related documents, the security agreement’s primary purpose is to create and describe the lien on collateral, not to cover unrelated matters or solely set the interest rate. Perfection of that security interest is typically achieved by filing a financing statement, but the actual lien comes from the security agreement itself.