What is the difference between a "financing statement" and a "security agreement"?

A financing statement serves publicly while a security agreement remains private, which is a key distinction between the two documents. A security agreement is a contract between a borrower and a lender that outlines the terms of the secured transaction, including the obligations of the borrower and the lender's rights in the event of a default. This document is typically private and not filed publicly; only the parties involved have access to its terms.

In contrast, a financing statement is a public notice filed with the appropriate governmental body, usually to provide third parties with notice of a secured party's interest in the collateral. It does not contain all the details of the security agreement but instead identifies the parties involved and the collateral covered under the security interest. The purpose of filing a financing statement is to perfect the security interest and establish it against other creditors, ensuring that the secured party's interest is recognized in public records.

Thus, the public nature of the financing statement and the private nature of the security agreement highlight their different roles within the secured transactions framework. This distinction is critical for understanding how parties protect their interests in secured transactions and interact with third parties.