The studies investigates how collateral can affect money lending either for business or personal purposes and its impact to the borrower and lender. Collateral is an important feature of the credit acquisition process to secure loans. Using personal collateral and commitments is a common feature of many small business credit contracts.The borrow and lender relationship is expected to influence the use of collateral.
Recently, some studies discuss the relationship between family ownership. It explains how families have big interests on the long term survival and reputation of the said firm. Collateral is a benefit because it reduces future bankruptcy costs since we all know this kind of lending companies needs to cash out a large amount of money. It serves as a security to the money borrowed. (Steijvers, Voordeckers & Vanhoof, 2006). This relates to our study since it involves collateral. 5’6 money lending is an informal lending institution so it is really important as a lender to secure the money that was borrowed.
By the use of collateral, the firm could lessen the risk of bankruptcy. The relation of this source to this study is it talks about the relationship of the borrower with the use of collateral to the lender. This explains the advantage of collateral to the lender.