A security interest is an interest in certain assets (the collateral) that secures payment or performance of an obligation. In a secured financing transaction, the borrower grants a security interest over its assets in favour of the lender (the secured party) to secure its payment and performance obligations to the lender.

A security interest is defined in section 1(1) of the Ontario Personal Property Security Act, R.S.O. 1990, c. P.10 (PPSA) as:

"[A]n interest in personal property that secures payment or performance of an obligation, and includes, whether or not the interest secures payment or performance of an obligation,

(a) the interest of a transferee of an account or chattel paper, and

(b) the interest of a lessor of goods under a lease for a term of more than one year;"

Under section 11(2)(a) of the PPSA, a security interest attaches only when the secured party obtains possession of the collateral, or when the debtor signs a security agreement that contains a description of the collateral sufficient to enable it to be identified.

A security interest in real property is an interest created by an agreement (typically a mortgage, debenture or assignment of leases and rents) or by operation of law over real property to secure the payment or performance of an obligation.

For more information on security interests, see Practice Notes, Security: Overview and PPSA: Creation, Perfection and Priority of Security Interests.