Good credit is one that can stand on its own that is repayment of the loan should be
ensured from the activities in which the loan or credit is going to use. However, the
generation of cash from such activities is dependent upon many factors and confronted
with both business risks and financial risks. Whereas advantageous changes positively
affect the cash generation, unfavorable changes may reduce the cash generation and
may affect the ability to repayment negatively. In these circumstances, creditors required
security against the loan for the better protection. Hence, to provide surety of repayment,
borrowers give some collateral/security against the borrowed amount. In this way,
creditors can secure the loan amount and may obtain benefits of the collateralized
Since borrowers need to provide some collateral/security against the loan amount,
therefore, it is very important to know how borrowers can obtain benefits from provided
collateral/security and what kind of hassles borrowers can face in providing security
against a loan.
1. Enlist and discuss in detail the advantages a borrower can gain by giving collateral
/security against the loan. (Marks 5)
2. Enlist and discuss in detail the disadvantages a borrower can face by giving
collateral/security against the loan. (Marks 5)
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