Loans and advances may be made either on the personal security of .the borrower or on the security of some tangible assets. The former is called unsecured/clean/personal advances and the latter is called secured advances.
Secured advances mean loans made on the security of tangible assets like land, building, machinery, goods, and documents of title to goods. Such loans provide absolute safety to a banker by creating a charge on the assets in favor of him.
The Banking Regulation Act, 1949, defines secured advances as “Secured loan or advance means a loan or advance made on the security of assets the market value of which isn’t at any tie less than the amount of loan or advance.” So, an advance payment made to the contractor on the basis of the security of materials brought by the contractor to the site of work under constructions called as Secured Advance.
The definition explains the two essential features of secured advances:
- The advance must be made against tangible security.
- The market value of the security must not be less than the amount of loan granted.