Understanding Collateral
As a general rule of thumb, banks will require a borrower to put up collateral for a loan. The only exception to this rule is for clients who have a long-term relationship with banks and whose business has proven to be profitable over a multi-year period.
Collateral is important for banks to reduce their risk. If the business is not able to pay back the loan, a bank may decide to take ownership of the collateral that has been pledged to them in the documents you sign when you got the loan. Usually a bank will not take ownership of collateral if you miss an interest payment, or one or two repayment installments, but will if they feel that their loan is at risk.