This paper draws upon the theory of contracting under asymmetric information to postulate and test several hypotheses concerning the relationship between the use and amount of collateral in financial loans to firms, the risk profile of the borrower, business cycle and monetary conditions of the economy, strength of the lending relation between borrower and lender, competition in the credit market and expertise and preferences of the lender. The research takes advantage of a very large panel of data coming from the Credit Register that contains the whole population of loans granted every year from 1984 to 2002 by Spanish banks to firms (approximately two million loans). Important novelties of the paper are that the quality of the borrower is measured in terms of ex ante and ex post credit risk, that the association between credit risk of the borrower and the use of collateral is evaluated in different segments of the credit market (short-term, and long-term loans, and new and old borrowers), which are likely to present differences in the relative information advantage of the borrower over the lender, and that we also control for borrowers' idiosyncratic effects. The evidence confirms that the use of collateral is determined in a predictable, different way in each market segment.