When a person or business borrows money, or purchases or leases goods on credit (without paying the full purchase price up-front), the credit extended to the borrower (1) may be secured/collateralized by money or other assets, or (2) may be unsecured. For example, if your business takes out a loan from the bank, the bank will likely require you to pledge certain assets as security or collateral for the loan—and if you default on the loan, the bank may use the legal process (attachment, repossession) to gain ownership of those pledged assets to satisfy the debt.

Other transactions in which a creditor extends credit to your business may be unsecured—such as the bank that issues your business credit card without requiring you to pledge specific assets as collateral in case you fail to make the payments. But even an unsecured creditor can file a lawsuit against you or use other means to collect the debt you agreed to repay. The law of secured transactions is generally governed by the uniform commercial code (UCC), which has been adopted and made the law in some form in most states.

In Arkansas, as in most states, the law of secured transactions is governed by Article 9 of the Uniform Commercial Code (UCC), which has been adopted into state law. When a business or individual borrows money or obtains goods on credit, the creditor may require collateral to secure the debt. This means that the borrower pledges assets, which could be repossessed or foreclosed upon if the borrower defaults on the loan. Secured transactions provide creditors with a legal interest in the collateral, which is perfected by filing a financing statement with the appropriate state registry, often the Secretary of State's office. On the other hand, unsecured credit does not involve specific collateral. Creditors of unsecured debts may still pursue legal action, such as filing a lawsuit, to collect the debt if the borrower fails to repay. In the case of default on an unsecured debt, the creditor may obtain a judgment and potentially use legal processes like garnishment or attachment to collect the debt. It's important for businesses to understand the implications of both secured and unsecured credit and to be aware of their rights and obligations under Arkansas law and the UCC.