Floating Lien

Definition - What does Floating Lien mean?

A floating lien is a security interest in a set of assets that remains in place even when individual assets in that set of assets may change.

A floating lien allows businesses to use credit by putting up a security interest in things like inventory or accounts that are received as collateral.

In the context of the law, floating liens give creditors a legal claim on the assets (even if they change), which were offered as collateral by the borrower.

Justipedia explains Floating Lien

A general lien allows a business to put up a security interest in any fixed-value asset that is owned by the business as collateral for a loan.

Available credit on a floating lien basis allows businesses to put up a group of assets that fluctuate in value as collateral for the credit. For example, a business producing multiple goods can provide a security interest in its inventory to obtain loans; the inventory may change depending on the goods, but a floating lien ensures that the creditor's loan to the business is secured by valuable assets.

An example of a floating lien could be a jewelry store that offers up a percentage of its inventory in exchange for a loan from a lender. Even if the inventory changes over time, from necklaces to rings to bracelets (and so forth), the floating lien still allows the lender to have an interest in the inventory, as per the terms of the agreement.

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