Ask Joey ™ a Question

What is collateral?

Collateral is when the debtor offers something tangible to the creditor in the case that the debtor cannot repay the loan (i.e. default on the loan). In order for the creditor to actual seize the collateral, the collateral must have attachment.

There are a variety of types of collateral that can offered to the credit:

1) Cash secured loan: This is when the debtor offers up other bank accounts that the creditor can liquidate

2) Invoice collateral: This when companies use uncollected invoices (i.e. accounts receivable) as collateral. If the debtor defaults, the creditor is paid on outstanding invoices instead of the debtor.

3) Inventory: A company can use inventory to collateralize a loan. Basically, the credit would take ownership of the inventory and liquidate it.

4) Real estate: The debtor can offer up their personal residence/land to collateralize a loan.

5) Equipment: The debtor can offer up personal equipment such as a car or boat. Company’s can also offer up machinery and equipment.


You might also be interested in...

  • Are you looking for a CPA review course?

    Universal CPA Review is the only CPA review course that has explanation videos for every single multiple choice question. These videos focus on helping identify the big picture and developing a systematic approach to tackling the concept. Our content creators are masters of their craft. They know what it takes to pass the exam and […]

  • How is audit risk impacted with changes in the assessment of inherent risk, control risk, and detection risk?

    Audit risk is the combination of inherent risk, control risk, and detection risk. Remember, the audit team will “assess” inherent risk and control risk. Based on the assessment, then audit team will set detection risk, which ultimately impacts the amount of substantive procedures that must be performed. So in the visual below, you can see […]

  • Scores Came Out: I Just Got a 73% on Audit, Now What?

    Yesterday morning a student interested in trying Universal CPA Review reached out and expressed concern with the fact that they just took audit for the fourth time and scored a 73%.  Audit is a lot of candidate’s “kryptonite” and the reason is because it is sort of like skiing. Easy to learn, extremely hard to […]