Perfection and chain of control determine enforceability. Confirm who can move the asset and under what conditions.
Clarity on title, perfection, and who can authorize movements of the asset prevents disputes at default.
Collateral-backed lending involves transferring a legal claim over the asset. This could be via title transfer, lien, or UCC-1 filing, ensuring lender protection.
A UCC-1 form is a legal filing used in the U.S. to establish a lender's security interest. It is a public declaration that the borrower has pledged specific assets.
Assets may be held with third-party custodians like banks or vaults. Terms around access, inspection, and audit should be agreed upon beforehand.
Contracts should specify redemption terms: grace period, repayment proof, asset condition upon return. Misalignment here can cause disputes.
Collateral arrangements must comply with local commercial law. Different jurisdictions treat pledged assets, defaults, and insolvency differently.
Borrowers should request a legal brief on the custody setup, examine insurance coverage, and negotiate transparent access terms.