Asked by Nelli Vartanian on May 21, 2024
Verified
What does it mean for a new business loan to be collateralized?
A) Should the business fail, the loan is simply not repaid.
B) The lender may sell a specific asset to recover the loan.
C) The borrower does not pay interest on the loan.
D) The borrower only pays interest when the entire loan is due.
Collateralized
The provision of an asset or property as security for the repayment of a loan, reducing the risk for the lender.
Business Loan
A loan specifically intended for business purposes, helping companies finance operations, equipment, expansion, or other business needs.
Lender
An individual, financial institution, or entity that provides funds to another with the expectation that the funds will be repaid, typically with interest.
- Differentiate between financial and real assets, the nature of bonds, and the concept of debt relationships.
Verified Answer
TS
Taylor SharpMay 24, 2024
Final Answer :
B
Explanation :
When a loan is collateralized, it means that the borrower has put up a specific asset, such as property or inventory, as security for the loan. If the borrower fails to repay the loan, the lender has the right to seize and sell that asset in order to recover the outstanding amount owed.
Learning Objectives
- Differentiate between financial and real assets, the nature of bonds, and the concept of debt relationships.