Floating Lien refers to a security interest in property that was not in the possession of the debtor when the security agreement was executed.
What is a floating lien?
- A floating lien, also referred to as a floating charge, is a way for a business to get a loan using a security interest in a broad group of assets as collateral, where the specific assets are not identified.
- You have far more freedom with a floating charge than a fixed charge because you can transfer, sell, or otherwise dispose of the assets without getting your lender's permission.Examples of floating charges include inventory, trade debtors, and stock.
- Key Learnings.A floating charge is a security interest over a collection of variable assets, both in terms of quantity and value.A floating fee is a tool used by businesses to guarantee loans.Most of the time, short-term current assets that the corporation uses up within a year are the ones employed in a floating charge.
- The bank can choose to take security over a subset of the company's assets or all of its assets, depending on the situation.A debenture will be used to impose fixed and floating charges over all of the company's property and assets if the bank decides to take the latter course.
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