DEFINITION of 'Security Agreement'

A document that provides a lender a security interest in a specified asset or property that is pledged as collateral. In the event that the borrower defaults, the pledged collateral can be seized and sold. A security agreement mitigates the default risk the lender faces.

BREAKING DOWN 'Security Agreement'

Security agreements often contain covenants that outline provisions for the advancement of funds, a repayment schedule or insurance requirements. The borrower may also allow the lender to hold the collateral for the loan until repayment. Security agreements may also pertain to intangible property, such as patents or receivables.

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