be responsible. And if you cant pay, the lender can sue both you and the co-signer. The exception is that youre off the hook if you declare Chapter 7 bankruptcy, but the co-signer isnt. Co-signing a loan is a big obligation, and it can strain even the best of friendships. If someone co-signs your loan, you might want to consider rewarding your angel for taking this risk.     From my own experience, I co-signed a car loan for an employee once, and Ill think twice before I do it again. I didnt lose any money, but the bank called me every time a payment was 24 hours late, and a couple of times I thought I might have to pay. I didnt like being financially responsible for a car that I had never driven and might never see again.           a. Secured Loans     Lenders often protect themselves by taking a security interest in something valuable that you own, called "collateral." If you pledge collateral, the lender will hold title to your house, your inventory, accounts receivable or other valuable property until the loan is paid off. Loans with collateral are called "secured" loans.       If you dont repay a secured loan, the lender sells your collateral and pockets the unpaid balance of your loan, plus any costs of sale. Not surprisingly, if you have valuable property to secure a loan, a lender will be much more willing to advance you money. But you also risk losing your house or other collateral if you cant pay back the loan.     A lender will expect you to maintain some ownership stake in the asset. This will normally be 10% to 30%, depending on the type of asset and the type of lender. That means you cant expect to get a loan for the same amount as your collateral is worth.     If you default on a loan and proceeds from the sale of the collateral are not enough to pay off the loan, the lender can sue you for the remaining amount. The best advice is this: Be very cautious when considering a secured loan. Make sure you know your obligations if the business fails and the loan cant be repaid.     Lenders like collateral, but it never substitutes for a sound business plan. They dont want to be selling houses or cars to recoup their money. In fact, lenders often only accept real property, stocks and bonds and vehicles as collateral. Items of personal property, such as jewelry, furniture, artwork or collections usually dont qualify. All lenders really want is for you to pay back the loan, plus interest. If they have to foreclose on your house, it makes them look, and probably feel, bad. Heres an example of a loan secured by real estate and used to open a business.     Example: Mary needs to borrow $50,000 to open a take-out bagel shop. She owns a house worth $200,000 and has a first mortgage with a remaining balance of $100,000. Uncle Albert has offered to lend Mary the amount she needs at a favorable interest rate, taking a second mortgage on Marys house as collateral for the loan. Mary agrees and borrows $50,000, obligating herself to repay in five years with interest at 10%, by making sixty payments of $1,062.50. If Mary cant make all the payments, the second mortgage gives Uncle Albert the right to foreclose on Marys home and sell it to recover the money he loaned her. Uncle Albert feels secure, since he is confident the house will sell for at least $150,000, and the only other lien against the house is the $100,000 first mortgage. If a foreclosure did occur, Mary would, of course collect any difference between the selling price and the balance of the two mortgages.