Collateral under the guarantee of a professional loan may relate to a business, a life insurance contract, shares or securities.
In the context of professional loans, banks are required to ask for a certain number of guarantees in order to guard against the risk of non-payment. The collateral is one of them and it is perfectly adapted to the entrepreneurial sector. Collateral is a contract between a creditor and a borrower that stipulates that in return for an intangible property in favor of the creditor, the borrower’s debt is secured. There are different types of collateral that can be used to guarantee professional credit.
The pledge of goodwill
When financing a business the collateral of it is often required by the bank. In order to guarantee his business, the borrower transfers his intangible personal property (business name, commercial name, right to lease, clientele, goodwill) to the creditor. It allows the borrower to continue to operate his business normally.
The pledge of a life insurance contract
The pledge of a life insurance policy can be a guarantee in the context of a professional loan. This option avoids the cost of insurance or mortgage. The creditor has two guarantee solutions. Either the borrower designates the creditor as the beneficiary of the life insurance for the amount of the debt, or the borrower pledges the contract. Nevertheless, the borrower no longer has the same rights on his life insurance contract after this pledge.
The pledge of shares
The pledge of shares is mainly used in the framework of company transfer. The creditor can then in case of default of payment either sell the shares or take the ownership of the company. The borrower can continue to work normally as long as there is no problem of payment.
The pledge of securities consists of giving securities (shares or bonds) as collateral to the creditor. It is a pledge of a financial product. Generally the borrower may continue to trade in his securities portfolio but he must not fall below a fixed limit with the creditor otherwise he must provide other securities as collateral. This type of collateral is well suited when guaranteeing an in-fine loan.