Banks are relatively selective in granting loans. Only if you appear creditworthy to the bank, you can obtain a loan. Therefore, there are certain securities that make it possible to obtain a loan.
In the case of collateral, there are 3 criteria on which the lenders place particular emphasis. They should be easy to sell, hardly lose value and be easy to value. The most important thing for the bank is that the security does not lose its value so quickly. The following is a list of common forms of collateral.
The guarantee as security
In the case of a guarantee, another person is liable for the loan that the borrower has taken out with the bank. The bank can demand the repayment of the loan from the guarantor if the actual borrower gets into payment difficulties.
In the normal case the default guarantee is chosen. In this case, the bank must first file a lawsuit against the borrower before the guarantor is required to pay the loan. Furthermore, there is the directly enforceable guarantee.
With this type of guarantee, the bank can demand payment of the loan installment from the borrower and the guarantors. In this guarantee, the guarantor must reclaim his money from the borrower himself. Business partners or related persons are particularly suitable as guarantors.
The real estate lien as security
The most important components of the mortgage are the mortgage and, of course, the land charge. In the case of a mortgage, the lien on the land or property is transferred from the borrower to the bank. In the event of default, the lender can foreclose on the property and collect the proceeds.
Who collects the proceeds from the foreclosure sale depends on who is listed first in the land register. That is why the banks usually insist on an initial registration. Even more widespread is the entry of the land charge in the land register. This form of real estate lien can be used as a security for any loan. This also means that the basic debt remains, even if the loan amount has been paid off.
The letter of comfort as collateral
In order to improve the creditworthiness of a subsidiary, other companies can act as guarantors for it. This form of credit enhancement is frequently used, especially for public corporations. In this type of guarantee, the guarantor company is given the name patron.
The lombard loan as collateral
By transferring a valuable object, it is possible to obtain a so-called lombard loan. In this case the valuable thing is seized and becomes the property of the creditor. The borrower remains the owner of the valuable asset. Often used is the wechselsellombard. In the process, securities of the borrower are pledged.
If a collateral assignment is made, the borrower can continue to use the asset. The borrower remains the owner, but must transfer the ownership rights to the bank. Especially in the case of company machines or scales, this loan security is good for the borrower, as he may continue to use the items.
The assignment as security
In the case of assignment, the borrower gives existing claims that he still receives from other persons as security to the bank. Often with employees also the assignment of the earnings is made.
But assignments can also be taken as collateral from insurance policies. These include, above all, residual debt insurance or life insurance.
A negative declaration as security
With the negative declaration, the borrower promises the bank that he will not lend or sell any of his valuable assets without the bank's permission. In fact, it is often the case that a land register entry is no longer necessary. In exchange, the bank receives a written negative statement from the borrower.