Definition
An asset pledged to secure financing.
Why it matters
In receivables financing, the invoices themselves are the primary collateral.
Where it shows up in a deal
Collateral is described in the security agreement and again, in shorter form, in the UCC-1 financing statement filed against your entity. The exact wording matters: a filing covering all assets encumbers far more than one limited to accounts and their proceeds, and the difference decides what you can finance later.
What it affects
- Priority runs by filing order, so an older blanket filing outranks a newer receivables-only one.
- Proceeds of collateral are usually captured too, which is how a lien follows cash into your bank account.
- A broadly drafted filing from an unrelated equipment loan can block a receivables facility entirely.
- Releases, subordinations and intercreditor agreements take weeks to negotiate, not days.
The common mistake
Related terms
- UCC-1 FilingA public notice that a lender has a security interest in a business's assets.
- LienA legal claim on an asset as security for a debt.
- Asset-Based LendingA revolving credit line secured by receivables, inventory or equipment.
- Borrowing BaseThe maximum amount available under an asset-based line, calculated from eligible collateral.
Questions about how collateral affects your facility?
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