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What is a security interest in personal property?
A security interest in personal property involves using any form of personal property or fixture to secure a debt. A borrower signs a promissory note that identifies the personal property that will serve as collateral to secure the loan. Personal property that may serve as collateral includes tangible and intangible assets, commercial paper, and commercial liens.
• Tangible Assets – Consumer goods, business equipment, farm products, and inventory.
• Commercial Paper – Documents of title, chattel paper, and negotiable instruments.
• Floating Liens – After-acquired collateral, future advances on collateral, and proceeds from the sale of collateral.
• Note: Security interests in personal property are governed by the state law version of Article 9 of the Uniform Commercial Code. Article 9 does not cover security interests that are not commercial in nature.
• Discussion: Can you think of any business transaction that gives rise to a security interest in personal property? Hint: Think about financing situations that go beyond the traditional borrower-lender relationship.
• Practice Question: Curtis wants to borrow money and is concerned over what he can provide as collateral for the loan. Can you describe to him that types of personal property that can serve as collateral for a secured loan?