An asset pledged to support a loan or lease and reduce lender risk.
For example, a printing company pledges its $120,000 press and $80,000 in accounts receivable as collateral for a $150,000 business loan — giving the lender the right to seize and sell those assets if the company fails to repay.
Why it matters: Pledging collateral significantly lowers the risk for lenders, which usually translates to higher approval odds and lower borrowing costs.
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