A lien can be either fixed or floating:
- Fixed lien – A lien on a specific fixed-asset (e.g., equipment or land) to secure the repayment of a loan, it attaching the asset until the loan is repaid; or
- Floating lien – A lien against a set of assets that can change over time, such as newly acquired inventory and accounts receivables resulting from sales, it attaching the assets when the lien is placed as well as the new assets as the assets change.
Before granting security, the lender must clarify the following points:
- Whether the borrower has the necessary legal capacity to grant security;
- Whether the granting of security will be in breach of any other agreement to which the borrower is a party;
- Whether granting security will limit the borrower’s ability to perform its day-to-day business, such as a fixed lien requiring lender consent for asset disposal; and
- The nature of the obligation any guarantor is accepting.
The internal guidelines that lay down the type of collateral that a lender generally accepts are specified in the collateral catalog, it including instructions on assessing acceptable collateral and on determining its collateral value.