---
title: "What Is Security Interest?"
term: "Security Interest"
description: "A security interest gives a lender a legal claim on specified collateral if the borrower defaults — it is what makes debt 'secured' rather than unsecured."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/security-interest
---

# What Is Security Interest?

> A security interest gives a lender a legal claim on specified collateral if the borrower defaults — it is what makes debt 'secured' rather than unsecured.

A **security interest** is the lender's right to take specified collateral if a borrower fails to meet debt obligations.

## How it works

Loan documents identify collateral — often all assets, accounts receivable, or intellectual property. The lender files financing statements (UCC-1 in the U.S.) to notify other parties of its claim. **Perfection** of the interest determines priority among competing secured creditors.

Venture debt commonly takes a blanket lien on assets, sometimes subordinate to a senior bank line. In default or acquisition, secured lenders must be satisfied or release liens before clean exits close.

Intercreditor agreements rank multiple liens — first lien vs [second lien](/glossary/second-lien). Equity holders sit below secured debt in downside scenarios.

## Why it matters

- **Founders:** Encumbered IP or receivables can block asset sales or clean Series B terms. Negotiate release provisions on paydown or exit.
- **Investors:** Cap table modeling must include debt stacks. A high secured debt load shrinks proceeds to preferred and common in moderate outcomes.

## Common mistake

Signing venture debt without tracking which assets are pledged and whether future rounds require lender consent for additional liens.

## Related ideas

- [Senior debt](/glossary/senior-debt)
- [Second lien](/glossary/second-lien)
- Venture debt covenants and events of default

## FAQ

### What is Security Interest in simple terms?

When you borrow with a security interest, the lender can seize or sell pledged assets — cash, receivables, equipment, or IP — if you do not repay. Filing a UCC-1 perfects many interests against other creditors.

### Why does Security Interest matter?

Secured lenders get paid before unsecured creditors in distress. Founders must know what collateral is encumbered before raising equity or selling the company. Investors model how debt sits in the liquidation waterfall.


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Source: https://venturecapitaltracker.com/glossary/security-interest