This section is from the book "Business Finance", by William Henry Lough. Also available from Amazon: Business Finance, A Practical Study of Financial Management in Private Business Concerns.
We have spoken in the preceding section of bank credit as if it were always obtained on the strength of a firm's general standing. This is, in fact, the case when a concern borrows simply by giving its unsecured note, and even when it indorses and discounts a note which it has received from some customer who is practically unknown to the bank. Bank credit is even more extensively obtained, however, when it is directly backed by collateral security of some kind. Such loans are more easily granted, not only because the banker calculates that he is secured against loss, but also because he has a better check on the uses to which his money is to be put.
Collateral may be conveniently classified under three heads: