- Money that a company counts as an asset, but that a lender will not count as collateral. Ineligible accounts might include accounts receivable that are more than 90 days past due, foreign accounts and illiquid investments. Assets that a lender is likely to accept as collateral include inventory, equipment and accounts receivable that have been due for fewer than 90 days.
When a company requests a loan or line of credit, the bank will examine its financial statements and will only accept certain assets as collateral when determining the company's borrowing capacity. These assets make up what the bank calls "tangible net worth." As a condition of the loan, the bank may require the company to meet ongoing financial standards such as not taking on additional debt and not selling any items that have been pledged as collateral.
The reason why some assets would be considered ineligible as collateral, is that they might be too difficult for the lender to collect. The asset may also be too illiquid or, in the case of accounts receivable past 90 days, they are unlikely to be paid.
Investment dictionary. Academic. 2012.
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