A security control agreement (SCA) is a legal document that sets forth the terms and conditions of a secured loan. It is a crucial document that outlines the rights and responsibilities of the borrower and the lender in the event of a default on a loan.
In essence, an SCA defines the security interest that the lender has in a particular asset or property that the borrower is using as collateral to secure a loan. Essentially, the SCA lays out the conditions under which a particular asset can be seized or liquidated by the lender if the borrower fails to fulfill the terms of the loan.
An SCA is typically used in situations where a lender wants to secure a loan with an asset that is outside the normal scope of a traditional loan, such as a company`s intangible assets like patents, trademarks, or intellectual property. Since these assets are not physical in nature, they cannot be pledged as collateral in the same way that real estate or inventory can be.
In an SCA, the borrower agrees to take certain steps to protect the asset being used as collateral, such as maintaining the asset`s value, keeping it free from liens or encumbrances, or obtaining the lender`s approval before transferring the asset to a third party.
The SCA also defines the lender`s rights in the event of a default by the borrower. For example, the lender may be allowed to take possession of the asset or sell it to recover the loan amount owed. The SCA may also specify the circumstances under which the borrower can cure the default and avoid losing the collateral.
In summary, a security control agreement is a critical legal document that protects the interests of both the borrower and the lender in a secured loan. By defining the rights and responsibilities of each party and outlining the conditions under which an asset can be seized or liquidated, an SCA provides a framework for a successful and transparent lending relationship.