What a Security Interest Is
A security interest is created by a security agreement: the debtor grants the creditor an interest in specified collateral. The collateral description defines what assets are covered. The security interest gives the creditor rights against the collateral on default, subject to Article 9 of the UCC and applicable law.
Collateral Description
The collateral description in the security agreement and the UCC filing defines the scope of the interest. Broad descriptions (e.g., “all assets”) cover more; specific descriptions cover less. The scope matters for what the funder can reach and for the merchant’s ability to obtain other financing.
A Security Interest and a UCC Filing Are Not the Same
The security interest is the underlying legal claim created by the security agreement. The UCC financing statement is the public filing that perfects (gives notice of) that interest. The filing does not create the interest; the agreement does.
Security Interest vs. Related Concepts
Default and Enforcement of a Security Interest
On default, a secured creditor may enforce its interest under Article 9, which may include taking possession of collateral, selling it, or applying proceeds to the debt. Enforcement typically requires notice and compliance with statutory procedures. A security interest does not by itself let a creditor seize bank funds without process.
When Qualified Counsel May Be Appropriate
If a funder claims a security interest in your assets, qualified legal counsel may review the security agreement, the collateral description, the UCC filing, and the validity and priority of the interest, and advise on responses.
Key Distinctions
A creditor’s claim in collateral created by a security agreement.
A public notice that perfects the security interest.
The assets in which the security interest is granted.
Key Takeaways
- 01A security interest is created by agreement and perfected by a UCC filing.
- 02The collateral description defines the scope of what the funder can reach.
- 03A security interest does not by itself let a creditor seize bank funds without process.
- 04Security-interest disputes may warrant review by qualified counsel.
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