Which term refers to the assets pledged to a lender to secure or support a loan?

Which term refers to the assets pledged to a lender to secure or support a loan?

• A. Capital
• B. Cash Flow
• C. Commerce
• D. Collateral

Answer: (D)

Collateral is the assets pledged to secure a loan. By offering collateral, the borrower gives the lender a claim to those assets if repayment falls short, which reduces the lender’s risk and can help the borrower obtain financing on better terms. Collateral can include real estate, equipment, inventory, vehicles, or other valuables, and in some cases even certain receivables or intangible assets. This concept is different from capital, which refers to financial resources or net worth; cash flow, which is the money coming in from operations; and commerce, which is the activity of buying and selling.

Collateral is the assets pledged to secure a loan. By offering collateral, the borrower gives the lender a claim to those assets if repayment falls short, which reduces the lender’s risk and can help the borrower obtain financing on better terms. Collateral can include real estate, equipment, inventory, vehicles, or other valuables, and in some cases even certain receivables or intangible assets. This concept is different from capital, which refers to financial resources or net worth; cash flow, which is the money coming in from operations; and commerce, which is the activity of buying and selling.