Using collateral to secure loans

Many businesses post collateral as security for loans. Collateral protects the lender if the borrower defaults. However, not all borrowers put up collateral when taking out loans. There's even some evidence that loans with collateral attached may be riskier for lenders. Why is collateral used sometimes, but not others? And why does collateral potentially involve more risk? In this article, Yaron Leitner considers these questions. He looks at some of the explanations for using collateral, focusing on its benefits and drawbacks.