Floating Lien

DEFINITION of 'Floating Lien'

A legal claim placed on a set of assets rather than on a single asset. A floating lien is used when the smaller components of the general asset can change over time, such as in the case of the outstanding balances in a company's accounts receivable. A bank making a loan secured by a floating lien will have an interest in the set of company assets when the lien is placed, as well as additions to that asset set over time.

BREAKING DOWN 'Floating Lien'

An example of this type of legal claim would be a floating lien placed on a company's inventory. Over time the amount of inventory may increase, and the floating lien is designed to cover the additional acquisitions. If the company goes into default, the value of the floating lien becomes a fixed charge, which gives the lender priority as a creditor.