What Are The Different Types Of Collateral?Fast Action Finance
Prior to seeking a loan, a borrower must have some type of collaterals to be used against the loan. If the principal cannot be paid back then the collateral is taken by the lender and resold or utilized as per their needs.
Collateral must be worth a substantial amount in order to be able to avail a loan. Assets like houses, land, vehicles, equipment and machinery as well stocks and bonds are often used by individuals and companies seeking loans. Here are more details:
â€¢ Real estate: Properties like real estate usually guarantee loans as they can be worth a lot. They may be houses, shopping centers, office complexes and warehouses, just to name a few.
â€¢ Natural resources: Natural resources such as oil, gas or coal can be used as collateral when applying for a loan. They are most often used prior to starting up a big project as well as for long-term loans.
â€¢ Equipment and machinery: Factory equipment or other machineries are worth a large sum of money which is why theyâ€™re commonly used as collateral. Theyâ€™re appropriate if the borrower is a syndicate or a large company.
â€¢ Stocks and bonds: Treasury certificates, certificates of deposits as well as stock and bonds which can be converted to cash readily can be used as collaterals too. The loan amount will depend on the value of these marketable securities with some amount being set aside to compensate for fluctuations in the market.