Additional Collateral

Loading the player...

DEFINITION of 'Additional Collateral'

Additional assets put up as collateral by a borrower against debt obligations. Additional collateral is used to lessen the risk to the lender. Creditors might require extra collateral in order for a given loan to remain at a constant interest level, or to appease investors or a credit committee. Such collateral might include cash, certificates of deposit, equipment, stock or letters of credit.

BREAKING DOWN 'Additional Collateral'

Collateral is commonly used when securing loans as a way to increase the likelihood of repayment. If the borrower defaults on a loan, the lender would have the right to acquire the collateral in an attempt to pay off the remaining debt. If additional funds are lent, then more collateral might also be required.

For example, if a lender requires that a $2,000 asset be pledged as collateral for a $10,000 loan, the $2,000 asset is considered collateral. If at some point additional funds are required or the lender feels that the borrower has become too risky, then additional collateral might be needed (if the contract allows it).

RELATED TERMS
  1. Collateral

    Property or other assets that a borrower offers a lender to secure ...
  2. Collateral Value

    The estimated fair market value of an asset that is being used ...
  3. Cross Collateralization

    The act of using an asset that is currently being used as collateral ...
  4. Advance Rate

    The maximum percentage of the value of a collateral that a lender ...
  5. After-Acquired Collateral

    Collateral for a loan obtained after the borrower has already ...
  6. Side Collateral

    A pledge that partially collateralizes a loan. The pledge can ...
Related Articles
  1. Personal Finance

    What Is Collateral?

    Collateral is property or other assets that a borrower offers a lender to secure a loan. If the borrower stops making the promised loan payments, the lender can seize the collateral to recoup ...
  2. Investing

    How Does Securities Lending Work?

    Securities lending is the act of loaning a stock or other security to an investor or firm.
  3. Investing

    A Primer On Collateralized Debt Obligation (CDOs)

    A collateralized debt obligation, or CDO, is a structured financial product backed by a pool of loans. When a retail or commercial bank approves loans such as mortgages, auto loans or credit ...
  4. Personal Finance

    What Is A Mortgage?

    A mortgage is a loan used to purchase a home, where the property serves as the borrower's collateral.
  5. Personal Finance

    Explaining Non-Recourse Debt

    Non-recourse debt limits a lender as to what it can and cannot pursue for collateral.
  6. Entrepreneurship & Small Business

    Using Collateral to Obtain a Loan for Your Small Business

    Learn what assets can be used as collateral for an asset-based loan, and find out best practices when seeking asset-based lending.
  7. Investing

    What are the Five C's of Credit?

    The five C’s of credit are what banks and other lenders evaluate about a potential borrower when making a lending decision. The five C’s are Character, Capacity, Capital, Collateral and Conditions. ...
  8. Managing Wealth

    Cash Flow Lending Vs. Asset-Based Lending

    When companies need financing, they rely on two primary forms of lending: cash flow-based and asset-based lending. We look at the pros and cons of each.
  9. Investing

    What is Debt Financing?

    When a company needs to pay for something, it can pay with cash, or it may finance the purchase. Financing means that it gets the money from other businesses or sources, in return for obligations. ...
  10. Entrepreneurship & Small Business

    Answer These 7 Questions Before Applying for a Loan For Your Startup

    Learn the seven key questions every budding entrepreneur needs to have answers to before sitting down with a lender to discuss a startup loan.
RELATED FAQS
  1. What is the difference between asset-based lending and asset financing?

    In the most common usage, the terms "asset-based lending" and "asset financing" refer to the same thing. Asset-based lending ... Read Answer >>
  2. When did people first start using collateral to secure loans?

    Read about the history of lending and collateral, including a time when an entire nation was pledged as collateral for all ... Read Answer >>
  3. What is a collateral assignment of life insurance?

    Learn about collateral assignment of life insurance so you can make a wise decision about what kind of collateral to use ... Read Answer >>
  4. What is the difference between secured and unsecured debts?

    Learn the differences between secured and unsecured debt; discover how banks buffer risks associated with each type of loan ... Read Answer >>
  5. Do all banks use the Five Cs of Credit when evaluating potential borrowers?

    Understand how lenders analyze a new credit application from a borrower, and learn why the five Cs of credit are an important ... Read Answer >>
  6. Are accounts receivable used when calculating a company's debt collateral?

    Learn how accounts receivables are recorded as assets on a balance sheet; they are used when calculating a company's total ... Read Answer >>
Trading Center