Collateral refers to assets that you are willing to put up to secure credit, such as a small business loan.

Your house (if you own it outright), your car, property, or equipment are all examples of tangible assets that you may be able to use as collateral.

Loans that use tangible assets as collateral are called secured loans (as opposed to unsecured loans). The advantage of secured loans is that they often have lower interest rates than unsecured loans.

One potential problem with collateral is that if you are unable to pay off your loan as scheduled, the assets you used as collateral will be seized and sold, and the money raised by selling the assets will be used to repay the loan.

For many small business people, there is also the problem of simply not having enough collateral to get a secured loan from a lending institution.

They may have to depend on equity financing instead.

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