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 North Dakota, as in most states, the law of secured transactions is governed by Article 9 of the Uniform Commercial Code (UCC), which the state has adopted. When a person or business in North Dakota borrows money or obtains goods on credit, the creditor may require the debt to be secured by collateral. This means that the borrower pledges assets such as property, equipment, or inventory to the lender as security for the loan. If the borrower defaults on the loan, the lender has the right to take legal action, such as attachment or repossession, to gain ownership of the collateral and satisfy the debt. On the other hand, unsecured transactions do not involve specific collateral. Creditors of unsecured debt, like those issuing business credit cards, do not have a direct claim on the borrower's assets. However, if the borrower fails to repay an unsecured debt, the creditor can still pursue legal action, including filing a lawsuit, to collect the debt. It's important for businesses to understand the implications of both secured and unsecured credit and to manage their debts responsibly to avoid legal consequences.