Collateral means temporary possession of an asset by a lender. If you give collateral you are allowing your lender to take charge of your asset for time being till you repay the loan. It is very much essential for small businesses these days and this gives the banks some surety against loans. Just like small mortgage loans where lenders take hold of your small assets till the repayment of loan, here too you need to submit collaterals for a short period of time.
The assets that you issue as collateral should be flexible to liquidate and easy to value. Then only they are worth to be issued as collateral. Some examples which can be issued as collateral are real estate and other heavy machinery.
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