GlossaryPayments & Finance
Collateral
Also called: security, loan security
What is Collateral?
Collateral is an asset pledged to a lender as security — property, equipment, stock or fixed deposits. If the loan is not repaid, the lender can enforce against the pledged asset.
Why Collateral matters
Collateral usually lowers the interest rate, because it lowers the lender's risk. It also raises the personal stakes, particularly when the security is a home rather than a business asset.
How Collateral works in practice
Understand exactly what is pledged and under what conditions enforcement is triggered. Unsecured and government-guaranteed schemes cost more but leave personal assets outside the lender's reach.
Frequently asked questions
Yes — unsecured lending and guaranteed schemes exist, typically at higher rates and lower amounts.
Related terms
Working Capital LoanBorrowing to fund stock, receivables and day-to-day operations.OverdraftA credit limit on your current account you can dip into as needed.Debt-to-Equity RatioHow much of the business is funded by debt versus owners' money.Fixed AssetA long-lived item bought to use rather than to sell.