Anything of monetary value can be collateral: stocks and bonds, money in the bank, a mint-condition baseball card from the 1950s. The type of collateral you can offer a lender usually depends on the kind of loan you’re seeking.
For a home loan, the collateral might be the house itself or another piece of real estate. For a business loan, the collateral could be business equipment, like factory machines or delivery trucks. It could also be outstanding invoices, which represent money owed to the business by customers.
Here are the main categories of collateral types:
- Real estate: Buildings and land can serve as collateral for residential mortgages, home equity loans, and personal loans, but default can result in foreclosure.
- Private property: This type of property includes cars, stocks, bonds, jewelry, cryptocurrency, and even intellectual property (everything from patents to recorded music) if the lender deems that property valuable.
- Inventory: Product-based businesses can borrow against their stock.
- Cash: Money in a savings account can serve as collateral to secure a loan.
- Invoices: A business holding customer debt can borrow against that debt.