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LSDefine
Simple English definitions for legal terms
loan certificate
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A quick definition of loan certificate:
A loan certificate is a special piece of paper that a group called a clearinghouse gives to a bank when the bank needs to borrow money. The certificate is worth a certain percentage of the value of the things the bank has put up as security. It's like a promise that the bank will pay back the money it borrowed.
A more thorough explanation:
A loan certificate is a document issued by a clearinghouse to a bank that has deposited collateral with the clearinghouse's loan committee. The certificate represents a loan in an amount equal to a specified percentage of the value of the collateral.
For example, if a bank has deposited $100,000 worth of collateral with a clearinghouse, and the clearinghouse issues a loan certificate for 80% of the value of the collateral, the bank would receive a loan certificate for $80,000.
The bank can then use the loan certificate as collateral to obtain additional funding from other sources, such as other banks or investors.
Loan certificates are commonly used in the financial industry to provide liquidity to banks and other financial institutions.