An adverse action notice is a document sent to a loan applicant stating a bank’s rationale for denying a loan. It may also contain a counteroffer, such as a lesser amount or a request for an approved co-borrower.
An authorized signer form is a document that allows an account holder to grant a range of clearance levels to individuals to perform certain functions within a bank account.

Collateral is something of value that a borrower pledges at a bank or credit union’s request to mitigate the financial institution’s risk in the event of nonpayment. If the customer or member defaults on the loan, the institution will take the item pledged to recover the money lent.

Secured vs. Unsecured Consumer Loans

Loans backed by collateral are secured loans; those that do not require collateral are unsecured loans. Although most loans need collateral, banks and credit unions sometimes make unsecured loans for small, low-risk amounts, such as credit cards and overdraft lines of credit. In these cases, the financial institution lending the money relies solely on an account holder’s creditworthiness.

Secured loans require collateral that can come in many forms, such as a car, certificates of deposit (CDs), real estate, boats, and airplanes. In some instances, even personal property, such as jewelry, is considered collateral.

UCC Collateral for Secured Commercial Loans

Certain types of commercial collateral can be pledged against more than one loan. One common example is Uniform Commercial Code (UCC) collateral. For example, the Acme Company owns equipment, carries inventory, and has accounts receivable worth $5 million. Acme would like to expand and needs a loan of $1 million. The business pledges to State Bank all the assets mentioned above as collateral, even though they far exceed the initial loan amount. Later, Acme realizes, however, that it has underestimated the expansion costs. The company returns to State Bank asking for another $500,000 and pledging the same collateral against its second loan request. At that point, State Banks may consider using the original filing to secure the additional loan. To do so, the financial institution would search the Secretary of State’s UCC Records to determine if any other institutions have a UCC filing on the same collateral. If not, State Bank could file a second lien to secure the new loan in addition to the first one.

Tracking Collateral

In the past, banks and credit unions may have found tracking collateral difficult. Using a paper filing system, financial institutions relied on manual tickler systems to track renewals on UCC financing statements. This approach was time-consuming and fraught with human error, especially when a piece of collateral was tied to multiple loans.

To increase efficiency in these situations, modern banks and credit unions are leveraging the power of collateral tracking software such as AccuAccount. For example, confirming current insurance on a piece of equipment would clear exceptions for all loans that are associated with that collateral. Similarly, once a UCC continuation is recorded in the system, it is reflected across all loan files tied to the collateral. Documents are entered into the system once, allowing numerous exceptions to be resolved with a single action.

Banking Resources

For more collateral tracking tips and best practices, be sure to check out our extensive Innovation Hub with free spreadsheets, whitepapers, and eBooks.

Browse our banking definitions page for more terminology.

Explore more resources

Exception Tracking Cost Calculator

Exception tracking has many moving parts—from notice generation to recordkeeping and reporting. How much does it cost your financial institution each year? Find out with Alogent’s free calculator.
Read More »

Related articles

Wednesday 27 September 2023

How to Enable Better Experiences for Multiple Stakeholders with Streamlined Document Management

Document management is often considered a “back-office” function that minimally impacts a financial institution’s key business objectives. In reality, streamlined document management can play a…

Learn More »

Tuesday 19 September 2023

From Data to Results: The Role of Personalization in Your Digital Banking Platform

One powerful strategy to enhance the user experience and drive engagement on digital platforms is through built-in contextual marketing. In the world of digital banking…

Learn More »

Wednesday 6 September 2023

[Playbook] Efficiently Managing To-Dos with Task Exceptions

Your financial institution is growing—more branches, more team members, more loan and account holders, and more follow-up. To keep pace with this complexity, you need…

Learn More »

Monday 28 August 2023

Exception Tracking: Is Now the Right Time to Upgrade Your Workflow?

Documentation and follow-up tasks for financial institutions to manage is commonplace—especially for banks and credit unions involved in commercial lending. Proactively tracking missing and expired…

Learn More »

Thursday 17 August 2023

[Playbook] Tracking and Resolving Recurring Document Exceptions

Proactively dealing with missing and expiring documents is a key component of an effective exception management strategy. However, that’s easier said than done when your…

Learn More »

Wednesday 9 August 2023

Six Steps to Maximize Your Financial Institution’s Digital Transformation Journey within the Digital Banking Channel

In today's rapidly evolving digital banking market, digital transformation and the adoption of cutting-edge, scalable solutions has become a necessity for banks and credit unions…

Learn More »

Tuesday 1 August 2023

Check Volumes are Declining, But Check Fraud is Rising: What’s it Costing your Financial Institution?

No financial institution – large or small – is protected from transaction or check fraud. And, the difficult reality for institutions is that fraud can…

Learn More »

Wednesday 26 July 2023

Boost Productivity at your Financial Institution with Enhanced Cold Storage

Cold storage systems can support numerous use cases at banks and credit unions. The phrase “cold storage” can be used to describe technology that manages…

Learn More »