What is the purpose of an after-acquired property clause in a security agreement?

• A. It limits coverage to assets identified at signing.
• B. To extend the security interest to assets the debtor acquires after the agreement is signed.
• C. To terminate security rights upon acquisition.
• D. To transfer ownership of assets to the lender.

Answer: (B)

An after-acquired property clause is included to extend the lender’s security interest to assets the debtor buys after the agreement is signed. This keeps future assets—such as new inventory, equipment, or receivables—covered by the lien, preventing gaps in collateral if the borrower expands or acquires new property. Without this clause, the security interest would typically attach only to assets existing at signing, leaving later acquisitions unencumbered. The clause does not terminate security rights upon acquisition, nor does it transfer ownership to the lender; those outcomes would defeat the purpose of securing the loan.