What usually serves as collateral for revolving credit?

Revolving credit facilities, such as lines of credit, are often secured using current assets that can be easily converted into cash to support repayment. Accounts receivable represent money owed to the business from customers, and inventory consists of goods ready for sale. These types of assets are considered liquid and allow lenders to quickly assess their value.

If a borrower defaults on a revolving credit agreement, lenders can quickly realize value by liquidating these assets, providing a higher level of security. In contrast, stocks and bonds, while they can also be types of collateral, are not the typical choice for revolving credit arrangements due to their market volatility and less direct connection to a company's operational cash flow needs. Intellectual property, although valuable, often has a less predictable value and is not as readily liquidated. Real estate assets, while they can indeed serve as collateral for other types of loans, are generally considered less desirable for revolving credit because they involve longer liquidation processes. Thus, accounts receivable and inventory are the most commonly accepted forms of collateral for revolving credit, reflecting their immediate liquidity and relevance to the business's ongoing operations.