Collateral is one of the 5 C's of credit. The others are Character, Capacity, Conditions and Capital.
Of all the five C's, Collateral is probably the C that causes people to say, "banks lend you money when you don't need it."
Collateral includes equipment, inventory, accounts receivable, real estate and securities. Collateral is another form of repayment.
Appreciate the lender's view. Collateral value is commensurate with the ease of its conversion to cash. To a lender, a negotiable security is more valuable than real estate. A banker does not want to be in the business of selling real estate.
If, as principal borrower, you have some personal assets expect the lender to demand a personal guarantee against the loan. Any third party who co-signs (guarantees) your loan must list that burden as a liability on his/her balance sheet. Thus, reducing his/her borrowing capability. Avoid asking an active business person who is, most likely, leveraging every asset even though he/she appears to be wealthy. If the venture has a high risk factor, avoid asking a relative who is dependent upon future income from an asset.
Absence of Collateral requires much higher value in the other 4 C's.
Stories from members will add great value to these maxims
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