A simple Loan Agreement includes a written promise to pay, payment terms such as interest rate or collateral, payment schedule, and recourse if the Borrower fails to make payments or defaults on the loan.

By pledging collateral as part of a financing arrangement, a borrower can obtain financing at lending terms that it otherwise would likely not have been able to receive. For a borrower’s request for a loan to be approved, a lender could demand collateral as part of the deal in an effort to protect their downside risk.