Banks require collateral for loans in order to
A)ensure that borrowers have significant amounts of their own funds invested in their businesses.
B)charge higher interest rates on loans.
C)reduce their tax liability on the interest they collect on loans.
D)reduce the total amount they are obliged to lend to any one borrower.

Question

Quizplus · Accepted Answer

Banks require collateral to ensure that borrowers have a significant amount of their own funds invested in their businesses. Collateral is an asset that borrowers pledge as security for the loan, which the bank can seize if the borrower is unable to repay the loan. This reduces the risk to the bank and ensures that the borrower has a stake in the success of the business. Collateral may include real estate, inventory, or equipment, depending on the type of loan.

Banks Require Collateral for Loans in Order to