Collateral in a business loan means that in case of default on the loan that specific creditor can sell off that collateral to satisfy the loan. It is true that the collateral can not be sold off prior to settlement of the loan, but that is not it's main purpose.

Depending on how the loan is set up bankruptcy need not occur for the seizure of the collateral. If one of the stipulations of the loan is a timeline event (such as FDA approval will occur by a certain date), then the loan can be called in and collateral seized to satisfy the debt if that doesn't happen.