Physical climate risks play a significant role in shaping collateral practices. Using comprehensive loan-level data covering all bank loans to firms in Sweden, we document that extreme weather events significantly influence banks’ collateral requirements for new loan originations and their reappraisal practices for existing loans. Specifically, adverse weather events increase the likelihood that new loans are collateralized and lead to higher collateralization levels for such loans. However, for existing loans, banks are less likely to reappraise real estate collateral following a weather shock, potentially delaying the recognition of value impairments. When reappraisals do occur, the collateral values are, on average, revised downward. Notably, we also find that extreme weather events do not directly influence the one-year default probabilities calculated by banks, highlighting a potential gap in the integration of physical climate risks into traditional credit risk assessments.