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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.


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