Security Interest

Security interest accompanies secured debt. A security interest is granted in assets of a debtor, and allows the holder of the security interest to take control of or claim ownership in the assets if the debtor fails to meet specified obligations set forth in the agreements governing the debt issuance.

Although granting a security interest to a lender is not uncommon for certain kinds loans such as mortgages, it is not ideal in an early-stage financing. Companies should consult with counsel before agreeing to grant a security interest to investors in a convertible note financing.