By Angwara Chaianong

The Business Collateral law is a tool to increase an opportunity for entrepreneurs to use economic assets as collateral in order to reach the source of funds easily and to be able to ask for various types of loans, especially medium entrepreneurs or SMEs. For example; when SME wants to request a financial loan and contact collateral like a commercial bank, the bank will consider assets that entrepreneurs use as collateral and will process a loan agreement and registration for the Business Collateral contract with the Department of Business Development, after that SME will get a loan to run the business. What is Business Collateral law? How important is it? Why shouldn’t medium entrepreneurs or SMEs overlook that law? You may study some essential information below.

The Business Collateral Contract is a law legislated for supporting entrepreneurs to use economic assets as collateral for a financial loan without handing over possession to creditors.

Assets used for business collateral are the following economic assets.
• Business is an asset which guarantor uses for running the business such as land, building, and car.

• Legal Claim is a right to receive payment regardless of whether it is cash or other assets.

• Chattel is real estate that the guarantor uses for running the business such as machine, inventory, or raw materials used for product manufacturing.

• Immovable Property: In the case, that guarantor runs immovable property business directly such as real estate, building; housing estate or allocating vacant land, the guarantor can use real estate or building for collateral.

• Intellectual Property includes copyright, patent, trademark and trade secret, etc.

The Business Collateral contract must be made by letter and registration only.

However, the guarantor can either hold the status of an ordinary person or a juristic person and has the right to use assets considered collateral and must prepare the property accounting to be verified by a bank or securities /finance company or insurance company. All those institutions are responsible for business collateral registration at the Department of Business Development, Ministry of Commerce, and have the right to accept debt from collateral before other creditors.

Compulsory collateral can be made in two types; Compulsory Property Collateral and Compulsory Business Collateral.

·        Compulsory Property Collateral: Creditors can sell property collateral or fall the property collateral into their own right. For example, a debtor has overdue debt and the principle exceeds the value of property collateral, and the debtor hasn’t paid interest for five years without collateral. If the institutions enforce collateral by a notified letter, they do not have the right to distribute and transfer collateral assets or do anything.

·        Compulsory Business Collateral: There must be a Referee who is approved by the Business Collateral Official. The referee must have expertise in Law, Accounting, Economics, Business Administration, or Property Appraisal, and no prohibited characteristics as defined by law. This referee is called Collateral Enforcer. When there is a case for collateral enforcement by contract, collateral institutions will issue a letter to the collateral enforcer. Once the letter is received, the collateral enforcer will assign a date, time, and venue to prove the facts shortly no later than 7 days after receiving the letter. The institutions are prohibited to distribute and transfer business collateral, except that the business owns fresh or spoiled assets such as agricultural products or raw materials being used as business collateral. The institutions may sell property collateral and take money to pay off debt.

The collateral contract can be terminated under the following cases.

•The insured debt has expired

•Redemption of the collateral property was made

•Disposal of the collateral property

•Guarantor and collateral institutions make an agreement letter to terminate Business Collateral Contract

In summary, the Business Collateral law is enforced to support entrepreneurs to use economic assets as collateral for a financial loans without handing over possession to the creditor. The law also helps reduce collateral conditions, creates equality for entrepreneurs to reach more sources of funds, and increases an opportunity and potential for entrepreneurs to get appropriate financial costs.