Principles of Managerial Finance, 15th Edition

16.3 Secured Sources of Short-Term Loans

1. LG5

2. LG6

When a firm has exhausted its sources of unsecured short-term financing, it may be able to obtain additional short-term loans on a secured basis. Secured short-term financing has specific assets pledged as collateral. The collateral commonly takes the form of an asset, such as accounts receivable or inventory. The lender obtains a security interest in the collateral through the execution of a security agreement with the borrower that specifies the collateral held against the loan. In addition, the terms of the loan against which the security is held form part of the security agreement. A copy of the security agreement is filed in a public office within the state, usually a county or state court. ...