Collateral note is a promissory note secured by the pledge of specific company assets. Basically, when a business signs a promissory note while receiving funding, they are promising to pay back the loan on a certain time table earlier agreed upon. To guarantee this note, they use company assets as collateral. The pledging of assets gives the bank some security if, for some reason, the borrower is unable to make payements. In this case, the bank is able to seize and/or sell the pledged assets to gain back some or all of the money they lent out.
Collateral is a lenders main source of security when lending money. Without collateral, banks and other lending institutions would never make money because they would be taken advantage of by dead beat borrowers. Collater guarantees that a lender will be able to salvage at least some of the capital that they lend out.
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