Collateral surety is commercial paper that has been pledged as collateral for a loan. When a business uses commercial paper as collateral for a loan, it means that should they cease payments, the lender has a right to collect on an agreed upon amount of the companies accounts receivables. In order for a collateral surety to be accepted by a bank, the business must have a good quality debt rating. That means that their customers must have a good track record of paying their bills on time. If the borrowing business ends up not paying back the loan and the bank seizes some of their accounts receivable, the receivables would be useless to the bank if none of the customers made their payments.
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