5th LPGB BPE: Understanding Terminology

(a) Contract and Agreement

(b) Primary Security and Collateral Security

  • Definition: Primary Security is the asset directly purchased with the loan funds. Collateral Security is an additional asset offered to the lender as extra security for a loan.
  • Example: If a borrower buys a car/machinery/equipment with a bank loan and pledges goods/securities/gold, etc., to the bank, then the car/machinery/equipment is the Primary Security, and the goods/securities/gold are Collateral Security.
  • Priority: If the loan defaults, the lender will utilise the Primary Security first. If the sale of the Primary Security is insufficient to recover the loan, the Secondary Security will be utilised.

(c) Bid Bond, and Performance Guarantee

(d) Banker’s lien and Banker’s right of set-off

(e) Drawing power and Power of attorney

(f) Guarantee and Indemnity

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