DEFINITION of ‘Side Collateral’
A pledge that partially collateralizes a loan. The pledge can be a physical asset, financial asset or personal guarantee. While physical or financial assets can be assigned an underlying price or value, personal guarantees depend solely on the character of the borrower. Most commercial lenders will not accept side collateral as a means to secure a loan or line of credit.
BREAKING DOWN ‘Side Collateral’
When accepting side collateral (physical, financial or cash), the borrower will typically sign a security agreement that gives the lender legal authority to sell or dispose of the collateral if s/he does not repay the loan or debt obligation. The security agreement can also be filed with a public records office as the financing agreement between both parties.
An example of side collateral would be pledging $1,000 of assets to obtain a $10,000 loan.