It provides a clear framework for securing necessary funds, allowing them to invest in growth without losing track of obligations, kind of like having a map on a road trip.
Typically, it could be assets like equipment, property, or any valuable item that the borrower owns, which the bank can claim if things go south.
It protects both the lender and the borrower by clearly laying out the rules of the game, just like a referee in a sports match.
It's a legal document that explains the borrower's commitments and the lender's rights, ensuring that the lender has some collateral to fall back on if the borrower doesn't keep their end of the bargain.