Future Business Leaders of America (FBLA) Agribusiness Practice Test

Collateral in lending refers to an asset or something of value that a borrower provides to a lender as security for a loan. This means that if the borrower fails to repay the loan as agreed, the lender has the legal right to seize the collateral to compensate for their losses. Collateral reduces the risk for the lender by providing a way to recover some of the money lent if the borrower defaults.

This concept plays a crucial role in the lending process, as it helps establish trust between the lender and borrower. By offering collateral, borrowers may also have access to more favorable loan terms, such as lower interest rates or larger loan amounts, because the risk to the lender is diminished.

Understanding collateral is essential for anyone involved in agribusiness or related fields, as it can impact financing decisions and overall business strategies.