What is an 'After-Acquired Clause'

An after-acquired clause is a provision included in legal contracts ensuring that subsequent acquisitions of assets will be included in the debtor's liability to the lender. It is sometimes also referred to as the “after-acquired property clause.”

BREAKING DOWN 'After-Acquired Clause'

An after-acquired clause is a proactive strategy that dictates that any and all property acquired by the debtor can be automatically added to the list of collateral attached to the debt or loan agreement. This relevant property can represent all types of assets or claims of value, including real estate, inventory, and accounts receivable listings.

By including this provision in the original contract or loan agreement, the lender avoids the hassle and inconvenience of needing to go through a new and separate process to adjust the terms of the loan each time the debtor may increase their assets or take possession of additional property. The lender does not need to initiate any new process or take any additional steps in order for this condition to go into effect. The lender also does not need to worry about constantly monitoring and tracking any changes of assets the debtor may experience.

After-Acquired Clause Pros and Cons

This clause is used as a way to provide extra protection to lenders. The clause ensures that new purchases can be seized if previously held loan payments are defaulted or if the debtor otherwise fails to live up to their obligations. This type of clause is commonly included in bond indentures and mortgage agreements.

The after-acquired clause may be helpful for borrowers who don’t have highest-quality credit and may pose a higher risk for lenders. These lenders may be more agreeable to extending credit if they know they will have the opportunity to expand their potential claims to encompass additional collateral at some point in the future.

However, it can have some disadvantages to borrowers, as well. As a result of this clause, the borrower’s current, existing lenders will automatically have a claim not only to the assets they own at the time they incur that debt, but also any additional assets they may add during the lifespan of the loan. This means future assets acquired during that period may be subject to the automatic placement of a lien or other claim. The borrower may then have difficulty using those same assets to obtain new credit or loans. This situation can this limit their opportunities for increasing their available credit or generating financial growth.  

  1. After-Acquired Collateral

    After-acquired collateral is collateral for a loan taken by the ...
  2. Negative Pledge Clause

    A negative pledge clause disallows a corporation from pledging ...
  3. Market Value Clause

    A market value clause is an insurance policy clause assigning ...
  4. Contingency Clause

    A contingency clause is a contract provision that requires a ...
  5. Hedge Clause

    A hedge clause is a clause in a research report that attempts ...
  6. Alienation Clause

    An alienation clause is a clause in a financial contract that ...
Related Articles
  1. Personal Finance

    Why Your Will Needs a 'Titanic Clause'

    If you don't have a Titanic clause in your will and disaster strikes, there's no guarantee that your intended beneficiaries will inherit your assets.
  2. IPF - Mortgage

    What Are the Main Types of Mortgage Lenders?

    Shopping for a mortgage lender can feel confusing and a little intimidating. Understanding the differences among the main types of lenders can help you narrow down the field.
  3. Personal Finance

    What Is Collateral?

    Collateral is property or other assets that a borrower offers a lender to secure a loan. If the borrower stops making the promised loan payments, the lender can seize the collateral to recoup ...
  4. Insurance

    Life Insurance Clauses Determine Your Coverage

    Understanding these key parts of your policy will help you to ensure that your family will be covered.
  5. IPF - Mortgage

    Shopping for Mortgage Rates

    Are you planning on buying a home? Here is a step-by-step guide to find and lock in the best rate for a mortgage.
  6. Investing

    How to Get the Money to Flip a House

    If you want to get into house flipping but don't have the cash to invest, read on for options.
  7. Personal Finance

    What Are Mortgage Lenders Allowed To Ask Borrowers?

    Seemingly intrusive or irrelevant questions are actually legal for lenders to ask of mortgage applicants.
  8. Investing

    Commercial real estate loans

    Obtaining a commercial real estate loan is quite different from borrowing for residential real estate. Here's what to expect and how to get what you need.
  9. Small Business

    Answer These 7 Questions Before Applying for a Loan For Your Startup

    Learn the seven key questions every budding entrepreneur needs to have answers to before sitting down with a lender to discuss a startup loan.
  1. Does inflation favor lenders or borrowers?

    Find out under what circumstances inflation benefits borrowers more than lenders and in which situations inflation can be ... Read Answer >>
Trading Center