It is an asset that serves as a guarantee to support the granting of a loan or bond issue. Something you need to give (which you will usually get back) as proof that you mean to pay back or return something loaned. business dealings that grant a creditor a right in property owned or held by a debtor to assure the payment of a debt or the performance of some obligation in a secured transaction.

Collateral can be divided into 5 categories: consumer goods, equipment, farm products (commodities), inventory, and property on paper. Paper collateral can come in the form of stocks, bonds or other securities. Another type of paper collateral is "chattel paper", which is simply a written document that says the holder is owed and has a security interest in valuable goods associated with the debt.
For example, assume that a car dealership has sold a car to a person who will pay for it in monthly installements. The dealership will keep the title of the car as collateral. The dealership may then use the security agreement with the buyer as collateral for a loan of its own from the bank.