Banks are relatively choosy when it comes to granting loans. Only if you appear creditworthy to the bank can you get a loan. Therefore, there are certain securities, through which it is possible to get a loan.
In the case of collateral, there are 3 criteria to which the fiancers attach particular importance. They should be easy to sell, hardly lose value and be easy to value. The most important thing for the bank is that the collateral does not lose its value so quickly. The following are 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 require the guarantor to repay the loan should the actual borrower get into payment difficulties.
Normally, 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 guarantee, the bank can demand payment of the loan installment from the borrower and the guarantor. In this guarantee the guarantor must reclaim his money from the borrower himself. As a guarantor are mainly business partners or close people come into question.
The mortgage as security
The very most important components of the security right over real property are the mortgage and, of course, the land charge. The lien of the land or property is transferred from the borrower to the bank in the case of a mortgage. In the event of default, the lender may foreclose on the property or land and collect the proceeds.
Who collects the proceeds from foreclosure is critically dependent on who is first in line on the land register. That is why banks usually insist on an initial registration of a guarantee. Even more widespread is an entry of the guarantor's debt in the land register. This form of mortgage can be used for as collateral for any loan. This also means that the land charge remains, even if the loan amount has been paid off.
The letter of comfort as collateral
To improve the creditworthiness of a subsidiary, other companies can act as guarantors for it. Especially for public corporations, this form of credit enhancement is often used. The guaranteeing company gets the name patron with this form of guarantee.
The Lombard loan as collateral
By the delivery of a valuable thing one can receive a so-called Lombard credit. The valuable item is pledged and becomes the property of the creditor. The borrower remains thereby owner of the valuable thing. The Wechselsellombard is often used. Securities of the borrower are pledged in the process.
If a collateral assignment is made, the borrower can also continue to use the thing. In this case, the borrower remains the owner, but must transfer the property rights to the bank. Especially in the case of company machinery or carts, this loan security is good for the borrower, because he can continue to use the things.
The assignment as security
In the case of assignment, the borrower gives existing claims, which he still receives from other persons, as security to the bank. Often, in the case of employees, the assignment of earnings is also carried out.
However, assignments can also be taken as collateral from insurance policies. This includes, above all, residual debt insurance or life insurance policies.
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. It is even often the case that an entry in the land register is no longer necessary. In return, the bank receives a written negative declaration from the borrower.