Module 5

Secured credit: why lenders take security, the traditional devices and the functional approach, collateral, attachment and perfection

A lender who lends without security is one of many creditors who share what is left when a borrower fails. A lender who has security has a claim on particular property, which it can use to be paid first. That difference explains why most business loans are secured, and why the rules on how security is created and made effective are among the most important in commercial law. The older law was a patchwork of devices, each with its own rules and some with hidden risks for other creditors. Modern systems replaced the patchwork with a single approach built on two ideas: a security interest becomes binding between the parties by attachment, and effective against others by perfection. This module sets out those ideas and the kinds of property on which security is taken.

General education on commercial law and secured transactions, using invented businesses, people and figures. It states common principles in simplified form and does not describe any one country’s law, which differs and changes; rules on sale, security, registration and priority are strict and local. It is not legal advice. Consult a qualified lawyer in the place that matters.