Which phrase best describes how creditors view collateral in relation to loan size?

Creditors generally assess the value of collateral as a critical factor in determining the size of a loan. If collateral is being used to secure a loan, creditors are usually unwilling to lend more than the value of that collateral. This conservative approach helps protect the lender’s interests; if the borrower defaults on the loan, the creditor needs to recover their funds through the sale of the collateral.

By limiting the loan amount to the actual value of the asset, creditors mitigate their risk. This ensures that they can recoup their losses by liquidating the collateral, should the need arise. This practice promotes responsible lending and helps maintain the overall stability of the financial system.

The other options either suggest unrealistic scenarios about loans exceeding collateral value or imply that collateral has no impact on loan decisions, which doesn't reflect standard lending practices. Thus, option B accurately captures the fundamental relationship between collateral and loan size as understood by creditors.