When a financial institution gives a loan, it wants to make sure it will get its money back. That’s why a lender usually requires a second source of repayment, called collateral—personal and business assets that can be sold in case the cash generated by the small business isn’t sufficient to repay the loan. Every loan program requires at least some collateral. If a potential borrower has no collateral, he/she will need a co-signer who has collateral to pledge. Otherwise it may be difficult to obtain a loan.

The value of collateral is not based on market value; rather, it is discounted to take into account the value that would be lost if the assets had to be liquidated.

Collateral Coverage Ratio
The bank will calculate your collateral coverage ratio as part of the loan evaluation process. This ratio is calculated by dividing the total discounted collateral value by the total loan request.     

SBA Loan Collateral