Collateral

Collateral is something of value you offer to back a loan, such as equipment, real estate, inventory, vehicles, or outstanding invoices. By pledging an asset, you give the lender a way to recover money if the business defaults, which lowers the lender's risk. A loan backed by collateral is called a secured loan, and the lender typically records its claim with a UCC filing. Equipment financing is a common example, since the equipment itself usually serves as the collateral for the purchase.

Because collateral reduces lender risk, secured financing often comes with larger amounts, longer terms, and lower rates than financing with no asset behind it. The trade off is that you can lose the pledged asset if you fail to repay. When you compare offers, look at what is being pledged, how the lender values it, and whether the claim covers one specific asset or a broader pool. If you would rather not pledge assets, you can ask about options that rely more on revenue or credit, though those often cost more.