After the crisis, banks often began trying to reduce their risk by demanding that borrowers use their personal assets as collateral when taking out loans. Guaranteeing a business loan means that if the business in question experiences difficulties, the sum borrowed would have to be returned to the bank by the person who guaranteed it.
According to the Banks of Lithuania’s calculations, collateralized loan portfolios grew by four times during the crisis, while recently, every third loan has featured collateral. Collateral is used in cases where a business’ assets would not be enough to cover the loan it desires from a bank.
According to the Bank of Lithuania, personal guarantees could be one of the reasons why company leaders and shareholders delay initiating bankruptcy procedures. Also, banks often allow clients to take on excessive debts, which leads some of those clients to become insolvent.
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