The Role of Collateral in Private Lending Deals

In private lending, collateral is often the difference between a risky handshake and a recoverable loan. Whether you're lending to an individual, investor, or small business, having a secured interest in collateral provides leverage, legal rights, and peace of mind. 

Here’s why collateral matters—and how to structure your deal the smart way. 

What Is Collateral? 

Collateral is property pledged by the borrower to secure a loan. If they default, the lender can seize or liquidate the collateral to recover the unpaid balance. 

Common types of collateral in private deals: 

• Real estate 

• Vehicles or equipment 

• Business inventory or receivables 

• Intellectual property or accounts 

• Personal property (in smaller deals) 

How It Protects the Lender 

• Deters default: Borrowers are less likely to walk away from a loan tied to assets. 

• Gives priority: A properly perfected lien gives you first dibs on the asset in case of bankruptcy or foreclosure. 

• Increases recovery: If a borrower defaults, you have a tangible path to recover value. 

Structuring the Deal 

For a secured private loan, you’ll need: 

• A promissory note (terms of the loan) 

• A security agreement (description of collateral and rights) 

• A UCC-1 filing (to perfect the lien, when applicable) 

• For real estate: a mortgage or deed of trust 

It’s critical that all documents match and are filed correctly. 

Don’t Overlook These Risks 

• Overvalued collateral: Appraise or verify value before finalizing the deal. 

• Shared or unclear ownership: Make sure the borrower legally owns the asset being pledged. 

• Unfiled liens: Failing to file a UCC-1 or mortgage means your interest isn’t legally protected. 

How We Help 

At Title Stream, we help private lenders document their transactions, file the appropriate liens, and protect their interests in the event of borrower default. If you’re making a private loan, don’t go it alone—structure your deal with security from day one.