Making a short term loan and want to put hold on checking account for $$ as collateral. Is this permissable?

Sure - wise is a different question.

Explain........ this is business type loan.

What type of loan it is makes no difference. Putting a hold on the account outside of Reg CC is the big issue. I see it over and over again and cannot for the life of me understand doing this.

ALWAYS it's an accomodation to the customer. Why not just put it in a savings/MMDA/CD or SOMETHING where CC doesn't enter into the picture.

Control is a big issue. Move the money to a savings or CD account. Leaving the money in a transaction account always presents issues, people want to pay checks over the hold, holds easily gets released and the money disappears before the bank is aware, and there is a reason these accounts are called "demend deposits".