Floating Lien

A floating lien, also known as a floating charge, is a way for a company to obtain a loan using a security interest in a general set of assets, in which the individual assets are not specifically identified, as collateral.

Floating liens are an effective way for retailers and other product-based businesses to use their inventory or accounts receivable as collateral. The actual items may be constantly changing, but the floating lien assures the creditor that its loan is secured against any new items. The borrower has the right to sell, transfer or dispose of any of its assets in the ordinary course of business.

If the company defaults, or otherwise fails to repay the loan, the floating charge "crystallizes" into a fixed charge, and the lender becomes the first-in-line creditor to be able to draw against the underlying asset.