Sometimes referred to as an all-assets lien, the blanket lien is an entitlement that is granted to a creditor as security for repayment of loans or other resources that are extended to a debtor. The blanket lien is unique in that it allows the creditor access to all assets that are owned by the debtor in the event of a default on the loan agreement.
The purpose of the blanket lien is to allow individuals and businesses that wish to pledge multiple assets as collateral for loans to obtain financial assistance. Unlike a lien agreement on a vehicle, which usually allows the creditor the right to repossess the vehicle in the event of the debtor failing to make regular payments on the debt, a blanket lien goes much further. At the discretion of the creditor, any of the items listed as a security interest for the loan may be called upon to retire the remaining debt on the defaulted loan. The debtor has no say in which of the pledged collateral may be collected and used to settle the debt.
Blanket liens are usually structured in one of two ways. The most common method is to include an itemized listing of all assets that are being used as collateral, with specific verbiage that allows the creditor to assume control of any or all of those assets in order to retire the debt. There are some instances where a blanket 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 pledged assets does not equal the amount of indebtedness that remains on the loan.
Businesses tend to utilize the blanket lien as a means of securing short term financing for an upcoming expansion or business related project, making use of assets that are in the possession of the company, but not necessarily essential to the central 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 the expansion. At the same time, the creditor is still assured of repayment, through the sale of the items listed in the blanket lien.