What is Collateral?

Collateral is an asset pledged to secure a loan, giving the lender a way to recover money if the borrower does not repay. Common business collateral includes real estate, equipment, vehicles, inventory, accounts receivable and cash. Some loans are secured by a specific asset, while others are secured by a general lien on all business assets. Offering collateral can improve approval odds or terms, but it also means you could lose that asset if the loan goes into default.

Example

An equipment loan uses the financed excavator as collateral; if payments stop, the lender can repossess it.

Related funding

Equipment Financing: The equipment itself secures the financing.

Related terms

CDC (Certified Development Company)Commercial MortgageCovenantAll terms