As an entrepreneur or business owner, you might be familiar with the term “security agreement.” It is an essential document that plays a crucial role in ensuring the safety of your assets or collateral. However, you may not be aware of the recent changes regarding the filing of a “494 security agreement” and its impact on your business.
In short, a 494 security agreement is a type of UCC filing that is required for any asset-based financing transaction. It is a document that outlines the terms and conditions of a secured loan and provides protection to the lender in case of default. The name “494” is derived from Section 9-494 of the Uniform Commercial Code, which requires the filing of such agreements.
So, why is a 494 security agreement required? The primary purpose of this agreement is to provide a clear record of what assets are being used as collateral for the loan. By filing this document with the state, the lender can claim priority over any other creditors who may have a claim to those assets. This is particularly important in case of default, as the lender can seize and sell those assets to recoup their losses.
Recent changes to UCC Article 9 have made it mandatory for lenders to file a 494 security agreement in some situations. For example, any transaction involving a “deposit account,” such as a checking or savings account, now requires a 494 filing. Additionally, any transaction that adds or removes collateral from an existing loan agreement may also require a new 494 filing.
As a business owner, it is essential to understand the impact of these changes on your financing options. If you are seeking asset-based financing, you will need to work with a lender who is familiar with these requirements and can ensure that all necessary filings are completed. Failure to file a 494 security agreement can result in your loan being declared unsecured, which could significantly impact your ability to secure future financing.
In conclusion, a 494 security agreement is a necessary document for any asset-based financing transaction. The recent changes to UCC Article 9 have made it even more critical to ensure that this document is filed correctly. As a business owner, it is your responsibility to ensure that you are working with a lender who can navigate these requirements and protect your assets. By understanding the importance of a 494 security agreement, you can make informed decisions that benefit your business.