collateral

(noun)

A security or guarantee (usually an asset) pledged for the repayment of a loan if one cannot procure enough funds to repay. (Originally supplied as "accompanying" security. )

Related Terms

Examples of collateral in the following topics:

  • Commercial Banks

    • ., a car or property) as collateral for it, which then becomes a secured debt owed to the creditor who gives the loan.
    • The debt is thus secured against the collateral.
    • In the event that the borrower defaults, the creditor takes possession of the asset used as collateral and may sell it to regain some or all of the amount originally lent to the borrower.
    • Commercial banks may also provide unsecured loans, which are monetary loans that are not secured against the borrower's assets (i.e., no collateral is involved).

  • Corporate Bonds

    • ., a car or property) as collateral for the loan, which in turn becomes a secured debt owed to the creditor of the loan.
    • The debt is thus secured against the collateral, and in the event that the borrower defaults, the creditor takes possession of the collateral asset and may sell it in order to recover some or all of the amount loaned.
    • In the case of unsecured debt, the absence of collateral means that the creditor may only satisfy the debt against the borrower.
    • Senior debt is often secured by collateral on which the lender has placed a first lien, which typically covers all the assets of a corporation and is frequently used in the resolution of credit lines.

  • The Five Cs of Credit

    • Capacity to repay, capital, collateral, conditions, and character, are referred to as the "Five Cs of Credit".
    • Collateral, or guarantees, are additional forms of security that you can provide the lender.
    • Giving a lender collateral means that you pledge an asset you own, such as your home, to the lender with the agreement that it will become the repayment source if you can't repay the loan.
    • Some lenders may require such a guarantee in addition to collateral as security for a loan.

  • Secured vs. Unsecured Funding

    • A secured loan is a loan in which the borrower pledges an asset (e.g. a car or property) as collateral, while an unsecured loan is not secured by an asset.
    • A mortgage loan is a secured loan in which the collateral is real estate.
    • A  car loan is a secured loan in which the collateral is an automobile, If the borrower does not pay back the car loan within the agreed upon terns, the lender may seize the automobile.
    • A secured loan is a loan in which the borrower pledges some asset (e.g., a car or property) as collateral.
    • If the sale of the collateral does not raise enough money to pay off the debt, the creditor can often obtain a deficiency judgment against the borrower for the remaining amount.

  • The International Monetary Fund (IMF)

    • The IMF does not require collateral from countries for loans but rather requires the government seeking assistance to correct its macroeconomic imbalances in the form of policy reform.
    • The incentive problem of moral hazard, which is the actions of economic agents maximizing their own utility to the detriment of others when they do not bear the full consequences of their actions, is mitigated through conditions rather than providing collateral; countries in need of IMF loans do not generally possess internationally valuable collateral anyway.

  • Long-Term Loans

    • In U.S. property law, a mortgage occurs when an owner (usually of a fee simple interest in realty) pledges his or her interest (right to the property) as security or collateral for a loan.
    • A debenture is a document that either creates or acknowledges a debt, and the debt is one without collateral.

  • Commercial Paper

    • Since it is not backed by collateral, only firms with excellent credit ratings from a recognized rating agency will be able to sell their commercial paper at a reasonable price.
    • Asset-Backed Commercial Paper (ABCP) is a form of commercial paper that is collateralized by other financial assets.

  • Trends in Credit After 2008

    • Other reasons why banks might suddenly stop or slow lending activity: An anticipated decline in the value of the collateral used by the banks to secure the loans; an exogenous change in monetary conditions (for example, where the central bank suddenly and unexpectedly raises reserve requirements or imposes new regulatory constraints on lending); the central government imposing direct credit controls on the banking system; or even an increased perception of risk regarding the solvency of other banks within the banking system.
    • Other causes can include an anticipated decline in the value of the collateral used by the banks to secure the loans; an exogenous change in monetary conditions (for example, where the central bank suddenly and unexpectedly raises reserve requirements or imposes new regulatory constraints on lending); the central government imposing direct credit controls on the banking system; or even an increased perception of risk regarding the solvency of other banks within the banking system.

  • Credit Operations

    • Lines of credit can be secured by collateral or may be unsecured.

  • Sources of financing for your organization

    • Bank loans (as stated in Chapter 1) "are not usually available to early-stage entrepreneurs unless you have a track record of a previous success and/or the assets to put up (as collateral) such as a home you own in return for securing the bank loan".
    • We work with community-based organizations to create and support funding systems that furnish small, collateral-free, low-interest business loans.