legal
Collateral
Collateral is a specific asset pledged to secure a loan, the lender can seize and sell it if the borrower defaults.
Last updated Reviewed by ICG Funding
Definition
What it means.
Collateral is the difference between a secured and unsecured loan. Real estate, equipment, inventory, and receivables are all common forms of commercial collateral. The lender files a UCC-1 to perfect its security interest.
Loan-to-value (LTV) ratios describe how much of the collateral’s appraised value can be borrowed. Equipment loans typically go to 80–100% LTV; commercial real estate runs 65–75%. Stronger collateral means lower rates and longer terms.
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