This Inventory Security Agreement is made between a debtor and a bank. The debtor
has borrowed certain funds from the bank and the debtor has as security for the
borrowing of such funds, issued a security agreement to the bank in respect to the
debtor's inventory. This document in its draft form contains numerous of the standard
clauses commonly used in these types of agreements, as well as optional language to
allow for customization to ensure the specific terms of the parties’ agreement are
INVENTORY SECURITY AGREEMENT
THIS INVENTORY SECURITY AGREEMENT (the “Agreement”), is made this ___
day of _____________, 2____, [Instruction: Insert date.] by and between
_______________________ [Instruction: Insert debtor’s name.] (the “Debtor”) and
___________________ [Instruction: Insert bank’s name.] (the “Bank”).
THE DEBTOR HEREBY acknowledges and agrees as follows:
1. The Debtor is a _____ [Instruction: Insert debtor’s type of business entity.] duly
organized and authorized to do business in the State of _____. [Instruction: Insert state.]
Debtor’s principal place of business is _________________________________
[Instruction: Insert debtor’s principal business address.] and shall notify the Bank
forthwith in the event debtor is no longer duly organized and authorized to do business as set
forth herein or in the event the principal place of business of the Debtor changes.
2. The following terms shall have the definitions ascribed to them:
(a) “Liabilities” shall mean all of the indebtedness of the Debtor now and in the
future to the Bank; and
(b) “Inventory” shall mean the inventory of the Debtor used by the Debtor in
association with the Debtor’s business and more particularly set out on
SCHEDULE “A” annexed hereto.
3. The Debtor hereby grants a security interest in and to all of the Inventory set forth on
SCHEDULE “A” as security for the Debtor’s indebtedness to the Bank. The Debtor hereby
further agrees that any and all proceeds from the Inventory including any and all accounts
arising from the sale of any or part of the Inventory shall form part of the security now
granted by the Debtor to the Bank.
4. The Debtor shall hold any and all Inventory in trust for the Bank. The Debtor shall be at
liberty to sell the Inventory with the prior written consent of the Bank.
5. The Debtor agrees that it shall at all times keep the Inventory free and clear of any and all
liens or encumbrances and shall not directly encumber the Inventory, except as set forth in
this Agreement. Debtor further agrees it shall defend the Inventory against all claims or
demands of any person claiming the same interest as Bank or an interest contrary to that of
6. The Inventory which is granted as security to the Bank by the Debtor shall be kept in good
condition by the Debtor. The Debtor agrees that it shall deliver the Inventory to the Bank
upon written request to do so and the Bank shall have the right to enter the premises of the
Debtor for the purposes of inspecting and examining the Inventory.
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7. The Inventory shall be kept at __________________________. [Instruction: Insert
inventory location.] In the event the Debtor wishes to move the Inventory, the Debtor shall
provide _______ (___) [Instruction: Insert number of days’ notice to be provided.] days’
written notice to the Bank of its intention to move the Inventory and information as to the
new location of the Inventory.
8. The Debtor agrees that it shall at all times keep the Inventory insured with a reputable
insurance company, with an insurance amount of not less than _______________
($________)[Instruction: Insert minimum insurance amount.] United States Dollars and
shall ensure that any such insurance policy covering the Inventory names the Bank as loss
payee. The Debtor shall provide a copy of all insurance policies in place covering the
Inventory to the Bank upon execution of this Agreement. The Debtor agrees that it shall
assign to the Bank any return or unearned premium due upon cancellation of any such
insurance and shall direct the insurer to pay to the Bank any and all amounts which may be
due and payable. Any and all sums which are received by the Bank in payment of insurance
losses or return or unearned premium shall be applied to the indebtedness of the Debtor. In
the event the Debtor fails to maintain satisfactory insurance, the Bank shall have the option
so to do and the Debtor agrees to repay with interest all amounts so expended by the Bank.
9. All taxes, assessments, and governmental charges on the Inventory are to be paid by Debtor
as they come due, unless they are being contested in good faith by appropriate proceedings.
In such instance, Debtor shall notify Bank of such proceedings within thirty (30) days of the
commencement of such proceedings. In the event the Debtor fails to pay any such taxes,
assessments and governmental charges, the Bank shall have the option so to do and the
Debtor agrees to repay with interest all amount