What is a general security agreement (GSA)?
A general security agreement is used to provide a safeguard for your assets. Dependent on the situation, lenders will require the borrower to enter into a general security agreement before the lender grants you access to the capital being lent. The agreement tends to be a viable method of security over the assets claimed by an individual or business entity. The contract is valid for 5 years. Banks tend to use a general security agreement when they are lending to multiple business entities.
What is the purpose of the general security agreement?
The primary purpose of a general security agreement (GSA) is to grant access to the funds being lent to a business entity. To execute the agreement successfully, all assets that the business entity owns must be explicitly stated in the agreement prior to execution. Both the lender and borrower must sign the general security agreement. All parties involved in the agreement should pay attention to the general security agreement details to ensure each party is covered and to ensure that all of the information on the agreement is verified.
What are the main elements of a general security agreement?
The main elements of the agreement are security interest clauses, guarantor information, loan covenants, a list of all of the borrowing entity’s assets, defining each parties’ obligations, remedies, what will happen in the event of a default, the guarantors’ information, detailed description of the loan’s collateral, and proof of ownership for the assets being used as collateral.
What information is necessary to register?
- Grantor details
- Secured party details (creditor and debtor information)
- Payment Method
- Collateral details
What are the debtor’s obligations?
The debtor is responsible for ensuring that all the clauses in the agreement are followed, such as:
- Third parties can’t make any decision regarding the collateral, without the lender’s permission
- The debtor can’t change the entity’s leadership without the lender’s approval
- Repay the agreed upon amount back to the lender
What if you default under a general security agreement (GSA)?
If the borrower is unable to meet their debt obligations, the lender will claim ownership of the assets and sell the assets at market value.