What is a ‘Collateral Value’
A collateral value is the estimated fair market value of an asset that is being used as loan collateral. Collateral value is determined by appraisal from a qualified expert. If publicly traded securities are being used, then the current price of the securities is the collateral value. However, marketable securities are subject to the margin requirement restrictions mandated by the Federal Reserve Board.
BREAKING DOWN ‘Collateral Value’
In most cases, the amount of the loan given will not exceed the collateral value of the assets, and will usually be less than its fair market value. This is because most lenders will assess collateral property at its fire-sale value and not its actual cost or current value. This is for both the borrower’s and lender’s protection.