Blanket lien

A security interest that covers all or nearly all of a borrower's assets, present and future, instead of one named piece of collateral.

Business lenders often secure a loan with everything the business owns: equipment, inventory, receivables, accounts. The Uniform Commercial Code makes that simple on the public record. A financing statement may indicate that it covers all assets or all personal property. The security agreement the borrower signs has to be more specific; the code says a description such as all the debtor’s assets does not reasonably identify the collateral, so agreements list the categories. The agreement may also reach property the business acquires later.

The practical effect is on the next lender. Among filed security interests the general rule is that the first to file or perfect ranks first, so an equipment lender or a line of credit provider that comes later sits behind the blanket lien unless the first lender agrees to step back on that asset.

A blanket lien can also touch real estate loans. The OCC’s handbook describes a bank taking one on all business assets, with real property included out of an abundance of caution.

Ask what the lien covers and whether the lender will carve out or subordinate for future equipment or receivables financing.

Go further

• Business lenders: Banks and credit unions by business loans held, by state.
• SBA 7(a) lenders: Lenders by 7(a) loans made, by state.
• Business line of credit package checklist: A line of credit pays for the gap between spending money and collecting it. The lender wants to see that the gap is real, that it closes, and what it can take as collateral while it is open.
• Equipment financing package checklist: Equipment is the simplest thing a business borrows for. There is a price, an invoice and a machine the lender can take back. The package is short, and the choices are about term, lien and who the lender is.

Related terms

• UCC lien: A lender's claim on business assets other than real estate, made public by filing a financing statement under Article 9 of the Uniform Commercial Code.
• Cross-collateralization: An arrangement in which two or more properties or assets secure the same loan, or each secures the borrower's other loans, so the lender can look to any of them if one loan defaults.
• Intercreditor agreement: A contract between two or more lenders to the same borrower that sets whose lien and payments come first and what each may do if the borrower defaults.
• Line of credit: A commitment from a lender to advance money up to a set limit, which a business can draw, repay and draw again as its cash needs rise and fall.
• SBA collateral requirements (7(a)): SBA's rules for what a 7(a) lender must take as collateral and how each asset counts, such as improved real estate at 85 percent of value. A request must not be declined only for thin collateral.
• Equipment financing: A loan used to buy business equipment, secured by that equipment and repaid over a term tied to how long the equipment will be useful.

Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.