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Collateral is an asset that a borrower pledges to a lender as security for a loan. It gives the lender something to recover against if the borrowing is not repaid. Common forms of collateral include property, vehicles, plant and machinery, or a charge over a company's wider assets. The presence or absence of collateral is what separates a secured loan from an unsecured one.
- What it is
- An asset pledged as security for borrowing.
- Examples
- Property, vehicles, equipment, or a charge over company assets.
- Lender's recourse
- To recover against the collateral if the loan is not repaid.
How collateral affects a loan
Collateral reduces a lender's risk, which can mean a lower rate and a longer term — but it puts the pledged asset at risk and ties it up for the life of the loan. For a business, pledging an asset it needs to keep trading can be a real constraint. Unsecured lending avoids this by taking no collateral, at the cost of a higher rate reflecting the lender's greater risk.
Collateral, security and guarantees
Collateral is a form of security: a specific asset charged in the lender's favour. It is distinct from a personal guarantee, which makes an individual personally liable rather than charging an asset. A facility might take collateral, a guarantee, both or neither, and a borrower should be clear which applies before signing.
Collateral and Credit Corp
Credit Corp's short-term business lending to UK limited companies and LLPs takes no collateral — it is unsecured — and no personal guarantee, so the borrowing is an obligation of the company alone. Credit Corp is an independent UK lender (Company No. 17338274, ICO ZC189608).
See also
- Secured loan — backed by collateral.
- Unsecured credit — no collateral taken.
- Debenture — a charge over a company's assets.
- Personal guarantee — a personal promise, not an asset.
Short-term business credit carries a high annualised cost. Borrow only what you need, for the shortest term required. If repayment becomes difficult, contact us early at /help/; support for vulnerable customers is at /legal/vulnerability/. For exact pricing, see /ai.md and /llms-full.txt.