What will a Security Agreement specify?

• A. What the loan can be used for
• B. Limitations on what the producer can do with the collateral
• C. What constitutes default
• D. The lender's remedies for default

Answer: (A)

The key idea is that a Security Agreement mainly governs what the secured party can do when the borrower defaults. It creates the security interest in the collateral and, crucially, sets out the remedies the lender has if there’s a default—things like taking possession, selling the collateral, and applying the proceeds to the debt. This remedies provision is central to the security agreement because it defines how the lender will recover what is owed if the borrower fails to meet the agreement.

While related documents may touch on other aspects (such as how the loan funds are used or what constitutes default), the most specific and defining content of a Security Agreement is the lender’s remedies for default.