Question

how does collateral provided by the borrower minimize the risk for the lender in a credit situation

Answer 1

First of all, collateral is an asset(such as machines, livestock, building, etc.) which a borrower of the credit gives to the lender as a promise for future payment.

Collateral provided by the borrower minimizes the risk of the lender, as, if the borrower fails to return the amount borrowed with the interest then, the lender has the right to sell that collateral/asset to gain the required amount of capital, taken by the borrower.