An arrangement in which two or more properties or assets secure the same loan, or each secures the borrower's other loans, so the lender can look to any of them if one loan defaults.
A lender asks for cross-collateral when one property alone does not support the loan, or when a borrower has several loans with it. Equity in a second property fills the gap.
The OCC’s handbook gives the arithmetic banks use against the supervisory loan-to-value limits. When a loan is cross-collateralized by two or more properties, the ceiling is the sum, for each property, of its market value less senior liens, multiplied by the limit for that property type. Take two improved commercial properties, where the limit is 85 percent. One is worth $2,000,000 with no other debt. The other is worth $1,000,000 with a $400,000 senior lien. The ceiling is $1,700,000 plus $510,000, or $2,210,000. That is a supervisory ceiling. The handbook says banks should set their own internal limits at or under it.
The cost is flexibility. A default on one loan can put every pledged property in play, and selling or refinancing one property needs the lender’s release, which may require a paydown. The handbook says banks should recheck the limits whenever collateral is substituted. Ask for release terms in writing before closing.
How it shows up in the data here
Not shown on this site. Public filings report a lender's loan balances by type, not which collateral secures which loan. The HMDA rows behind loan comps describe one property per loan. To see how added collateral changes the ratio, run the combined figures through the LTV and LTC calculator, then ask the lender what it takes to release a property later.
Go further
- LTV and LTC calculator: Loan to value and loan to cost from figures you enter.
- Loan comps: Who made loans like yours, with the median reported rate and term.
- LTV and LTC calculator: Loan to value and loan to cost, the equity a lender will ask for, and the federal supervisory limit for the property type.
- How bankers evaluate a commercial loan deal: A credit officer asks one question five ways: how will this loan be repaid, and what happens if it is not? Knowing the five tests lets you size a request before you send it.
- Guarantor strength and recourse, explained: A guaranty is the lender's second way out. Whether you sign one, how much it covers and what the lender checks before accepting it shape a commercial loan as much as the rate does.
Related terms
- Blanket lien: A security interest that covers all or nearly all of a borrower's assets, present and future, instead of one named piece of collateral.
- Loan-to-value ratio (LTV): The loan amount divided by the value of the property securing it. A $700,000 loan on a property valued at $1,000,000 is 70 percent loan to value.
- Supervisory LTV limits: Loan-to-value ceilings in the federal real estate lending guidelines, from 65 percent for raw land to 85 percent for improved property, that a bank's own limits should not exceed.
- Intercreditor agreement: A contract between two or more lenders to the same borrower that sets whose lien and payments come first and what each may do if the borrower defaults.
- SBA collateral requirements (7(a)): SBA's rules for what a 7(a) lender must take as collateral and how each asset counts, such as improved real estate at 85 percent of value. A request must not be declined only for thin collateral.
- Personal guaranty: A signed promise by an individual, usually an owner, to repay a business or real estate loan personally if the borrowing company does not.
Sources
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.