A general lien is a creditor’s right to access all of a debtor’s assets as security for repayment of loans. It differs from a vehicle lien as any collateral can be collected to settle the debt. Businesses use it to secure short-term financing for non-essential assets.
Sometimes referred to as a lien on all assets, a general lien is a right granted to a creditor as security for the repayment of loans or other resources extended to a debtor. The general lien is unique in that it allows the creditor access to all assets owned by the debtor in the event of a default on the loan agreement.
The purpose of the general lien is to allow individuals and businesses who wish to pledge multiple assets as collateral for loans to obtain financial assistance. Unlike a vehicle lien agreement, which generally allows the creditor the right to repossess the vehicle in the event the debtor fails to make regular payments on the debt, a blanket lien goes much further. At the creditor’s discretion, any of the items listed as a security interest for the loan may be required to retire the remaining debt on the defaulted loan. The debtor has no say in which of the promised collateral can be collected and used to settle the debt.
General liens are generally structured in one of two ways. The most common method is to include a detailed list of all assets being used as collateral, with specific verbiage that allows the creditor to take control of any or all of those assets to pay off the debt. There are some cases in which a general lien is written to allow a creditor to go after other assets owned by the debtor, in the event that the market value of the assets pledged does not equal the amount of remaining indebtedness on the loan.
Businesses tend to use the general lien as a means of securing short-term financing for an upcoming expansion or business-related project, making use of assets that are owned by the business, but are not necessarily essential to it. the core operation. By using collateral that is peripheral to the business, the debtor ensures that the business will continue, even if unforeseen circumstances delay or destroy expansion. At the same time, the creditor is still assured of repayment, through the sale of the items listed in the lien.
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