Collateral
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. A loan backed by collateral is a secured loan; a loan with no collateral is unsecured.
- 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 Credicorp
Credicorp'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. Credicorp is an independent UK lender, not affiliated with Credicorp Inc of Peru, Credit Corp of Australia, or any other Credicorp entity outside the United Kingdom (Company No. 16093826; ICO ZC157682).
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.