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Purchase-money security interest PMSI
Also called PMSI, purchase money lien, purchase-money priority.
A security interest in the specific asset the credit paid for, which can outrank an earlier all-assets lien in that asset provided the filing and notice steps in UCC Article 9 are followed.
Drafted with AI assistance and checked by a person. Its factual claims were verified against the sources listed at the end, by Find Me Funders research desk.
What it means
This is the exception that lets a business with a blanket lien already on file still finance a machine. Priority in Article 9 normally runs to whoever filed first. A purchase-money security interest jumps the queue, but only in the item the money bought, and only if the procedure is right.
What makes it purchase-money
The credit has to be tied to the acquisition. A seller who finances its own goods has a purchase-money interest; so does a lender whose advance is in fact used to acquire the collateral. Money advanced for general working capital does not become purchase-money because you later spend some of it on equipment.
The procedural steps
For equipment and other non-inventory goods, the secured party must perfect before the debtor receives possession or within 20 days after — see UCC §9-324. For inventory the rule is stricter: perfect before delivery and send authenticated notice to the holders of conflicting filings beforehand. Miss the window and the interest is still valid, it simply loses to the earlier blanket lien, which usually means the deal does not happen.
Where you meet it
An equipment lender running a lien search finds an existing all-assets filing and has three options: take a PMSI and file a UCC-1 describing the machine by make, model and serial number; ask the incumbent for a lien waiver or partial subordination as to that asset; or decline. Which one it picks depends on how confident it is in the paperwork and how cooperative your existing funder is.
Where this one catches people
Two things go wrong. If you are the borrower, the 20-day window is somebody else's deadline that becomes your problem: an equipment lender that files late is behind your blanket lienholder, and when it discovers that at audit it can call the deal or demand a subordination your incumbent has no reason to give.
The more common trap is the collateral description. A filing that says "the equipment described on Schedule A, and all equipment now owned or hereafter acquired by Debtor, and all proceeds" is a blanket lien wearing a purchase-money label. Purchase-money priority attaches only to the purchased item and its identifiable proceeds; the rest of that description is an ordinary all-assets grant that will sit on the public record and block your next facility. Read the collateral description on the UCC-1 the equipment lender actually files, not the one described to you.
Worked through
Suppose a working capital funder filed an all-assets UCC-1 against your business in March. In September you buy a printing press for 90,000 on equipment finance. The equipment lender files a UCC-1 in the state where you are organized, describing the press by serial number, within 20 days of delivery.
On the press, the equipment lender is first, even though the March filing is older. On your receivables, inventory, deposit accounts and everything else, the March filing still leads. If the equipment lender had instead filed in October, 30 days after delivery, the March filing would outrank it on the press too.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
Where you will meet this term
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Sources and checks
Every figure on this page traces to a document someone read, on a date. Where a check is past its review date it says so rather than passing as current.
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A PMSI in goods other than inventory has priority if perfected when the debtor receives possession or within 20 days after
definition"a perfected purchase-money security interest in goods other than inventory or livestock has priority over a conflicting security interest in the same goods" if "perfected when the debtor receives possession of the collateral or within 20 days thereafter."
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For inventory the rule is stricter: perfection by the time the debtor receives possession plus prior authenticated notification to holders of conflicting interests
definitionThe PMSI must be "perfected when the debtor receives possession of the inventory", the party "sends an authenticated notification to the holder of the conflicting security interest", and that holder "receives the notification within five years before the debtor receives possession".
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Purchase-money status requires the credit to be tied to acquisition of the collateral and actually so used
definitionA purchase-money obligation is "an obligation of an obligor incurred as all or part of the price of the collateral or for value given to enable the debtor to acquire rights in or the use of the collateral if the value is in fact so used."
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The default rule the PMSI displaces is first to file or perfect
definition"Conflicting perfected security interests and agricultural liens rank according to priority in time of filing or perfection."
Purchase-money security interest — common questions
What does purchase-money security interest mean?
A security interest in the specific asset the credit paid for, which can outrank an earlier all-assets lien in that asset provided the filing and notice steps in UCC Article 9 are followed.
Where does purchase-money security interest catch people out?
Two things go wrong. If you are the borrower, the 20-day window is somebody else's deadline that becomes your problem: an equipment lender that files late is behind your blanket lienholder, and when it discovers that at audit it can call the deal or demand a subordination your incumbent has no reason to give.
Is purchase-money security interest the same as an interest rate?
Purchase-money security interest is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does purchase-money security interest apply to?
Term Loan, Equipment Financing, Asset-Based Lending.
Is there a worked example of purchase-money security interest?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside purchase-money security interest?
After-acquired property, Blanket lien, Financing statement, First position, Lien position.
Has this definition been checked?
Yes. Its claims were verified against the sources listed at the end of this page, and the reviewer is named.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.