When a person or entity grants or takes out a loan, the debt will generally be either secured or unsecured. A secured debt is one where the borrower pledges some kind of property as collateral for the loan. For a personal loan, it could be something like a car or a house. For a business loan, it could be the various assets of the business itself. If the borrower defaults on the loan, the lender can take possession of the collateral to recoup its losses on the loan. The debt is thereby secured by the collateral. (An unsecured debt is one in which the debt is not secured by collateral).

Secured debts are more attractive to lenders because they are less risky. Consequently, such loans tend to come with more favorable terms for the borrower as well.

Filing a financing statement (UCC-1) with the Secretary of State “perfects” the security interest by essentially putting others on notice of the lender's right to take possession of the property. This grants priority to the filer in the case of competing interests in the collateral. The Uniform Commercial Code (UCC) requires a financing statement to include the name and address of both debtor and creditor, as well as a description of the collateral used to secure the loan.

Bear in mind that it is the loan documents that actually grant the creditor the rights in the collateral, not the financing statement. The financing statement merely records and gives notice of those rights to others. To properly document a secured loan, along with a promissory note, a secured debt should include a security agreement. With the security agreement in place, you can then file the UCC-1 with the Secretary of State to perfect the security interest.

Helix Law Firm can help with document drafting

We regularly help our clients draft custom documents for their personal and business needs, including loan documents. We can help draft a security agreement for a secured debt and make sure the financing statement is filed with the Secretary of State.

If you're interested in learning more about how Helix can help you or your business, please call us at (619) 567-4447 to schedule a free consultation.