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 Rhode Island, as in most states, the law of secured transactions is governed by the Uniform Commercial Code (UCC), specifically Article 9, which deals with secured transactions. When a person or business in Rhode Island borrows money or obtains goods on credit, the credit may be either secured or unsecured. Secured credit involves the borrower pledging assets as collateral, which the lender can claim through attachment or repossession if the borrower defaults on the loan. For instance, if a Rhode Island business takes out a loan, the bank may require the business to secure the loan with business assets. If the business fails to repay the loan, the bank can use legal processes to take possession of the collateral. On the other hand, unsecured credit does not involve collateral. Credit cards are a common form of unsecured credit. While unsecured creditors do not have an initial claim to specific assets, they can still pursue legal action, such as filing a lawsuit, to collect outstanding debts. Rhode Island's adoption of the UCC ensures a standardized set of rules for secured transactions, providing clarity and predictability for both borrowers and lenders in the state.