A collateral agreement creates a lender’s security interest in a borrower's property. Should the borrower default on their debt, the lender may take ownership of the property and sell it to recover what they’re owed. This agreement creates that right alongside the loan itself, typically as a loan agreement or an insurance policy.
Collateral Agreement Template
Secure your loan or obligation with this free collateral agreement template, so everyone knows what asset backs the deal and what happens if payments stop. Customize and sign the document electronically.
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About This Template
Use this collateral agreement template when property is being pledged to secure debt between a lender and a borrower. This may be a loan agreement, an insurance policy, or any other financing arrangement in which the lender requires a recorded claim on certain assets:
- Assigns the parties involved (the secured party and debtor) to a specific loan or financing arrangement
- Provides a space to identify the collateral in question in detail, including location and ownership information
- Provides representations and warranties from both parties relating to the ownership of the collateral and limitations on transferring it
- Details default triggers as well as lender remedies, including the ability to take ownership of and sell the collateral
- This agreement includes language governed by Article III of the Uniform Commercial Code (UCC) as well as a field for governing state law
Who It's For
Use this collateral agreement sample when drafting a formal record of a lender's security interest in a borrower's property. Some examples include:
- Personal or business lenders writing loans who want to claim against certain assets
- Small business owners who are pledging business assets, inventory, or real property
- Insurance companies that want collateral on board to secure a policyholder’s exposure
- Real estate investors who require an additional security instrument alongside a mortgage arrangement
- Creditors dealing with numerous debtors who need a simple collateral agreement form that they can reuse.
What's Included in the Collateral Agreement Template
This free collateral agreement template includes clauses that any security agreement should have. Each clause is editable and adaptable to your specific agreement.
- Description of debt: details the terms of the financing arrangement that this agreement is securing
- Detailed collateral description: where you identify the collateral with specifics about the property being pledged
- Representations and warranties: each party warrants to the other their respective ownership rights in the collateral and the absence of restrictions on its transfer
- Terms: grants the secured party an interest in all assets delivered as collateral under this agreement
- Default: defines the circumstances under which a default occurs
- Remedies upon default: allows the lender to foreclose on and/or take possession of the collateral up to the extent permitted by law
- Survivability clause: addresses which provisions remain in place after the agreement terminates
- Confidentiality and agreement termination language
How to Write Your Collateral Agreement
This collateral agreement template gives you the format. Filling out each section with the right language is up to you. The steps below are designed to guide you through drafting your own agreement.
1. State the reason for the debt before listing collateral
Don’t overlook the Debt section. Clearly state the purpose of this collateral agreement, specifically which loan or financing document it relates to. Include details such as the interest rate and payment schedule, if applicable. Your default triggers are defined by how you describe the parties’ obligations under the financing arrangement.
2. Leave no collateral ambiguous
If you can’t describe the collateral clearly, neither can a court. Provide the make and model if it’s a vehicle. Include the street address and legal description if it’s real property. List inventory by category, location, and value. Details matter if the lender needs to repossess.
3. Choose between Representations and Terms
This template purposefully includes two sections that cover similar information: Representations and Warranties and Terms. It also highlights this fact for you. Compare the two sections and remove any redundant provisions. Keep whichever language works best for your situation and delete the rest. Once you make that edit, this overlap will solve itself.
4. Be explicit about the default triggers
Generic language about default won’t stand up if the borrower actually defaults. The template provides examples for you to remove. Replace them with the circumstances that actually constitute a default under this agreement. If you have a loan agreement with an attached payment schedule, “30 days past due” should be a trigger here. Reference the loan document by name.
5. Remove Perfection Certificate language if you’re not using one
You’ll notice a few clauses reference a Perfection Certificate. If you created one and plan to attach it to this agreement, keep those references. If not, remove them. You don’t need a Perfection Certificate. But if you don’t use one, there should be no mention of it in the collateral agreement. Leaving those references in creates unnecessary ambiguity if you ever need to enforce the agreement.
FAQ
The terms are very similar and are often used interchangeably. Security agreement is the umbrella term used under Article 9 of the Uniform Commercial Code. Collateral agreements fall under that category. This template specifically concerns itself with pledging identified property against named debt.
Yes. Collateral agreements are most commonly associated with business loans, but you can use them for personal loans as well. You may even use them to secure an insurance policy. The specifics of the loan would be outlined in the Debt section. The property being pledged would be described in the Collateral section.
Not always. Depends on the state in which you’re creating the agreement and the type of collateral being pledged. Real property generally must either be notarized or recorded with a local county office. Personal property, such as vehicles or business equipment, typically requires only a signature on the agreement and a UCC filing.
Yes. You can download this collateral agreement template as a free editable Word document or a ready-to-print PDF. If you need to make changes, edit the Word document. If you want to type directly onto the form, use the PDF. You can sign the document right here without printing.
Collateral is property that the borrower pledges as security for the debt. The lender can claim that the property is in default. A guarantor is a third party who agrees to take responsibility for the debt if the borrower defaults. Guarantors don’t appear on a collateral agreement.
A collateral agreement lasts until the borrower fulfills their obligations under it and the debt is repaid. Upon termination, the collateral should be released back to the borrower free of charge. Define what fulfilling the parties’ obligations looks like in the Debt section.
