What Is a Blanket Lien?

A contractor paints a ceiling.
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DEFINITION
A blanket lien is a type of lien in which a lender has the right to seize several, or even all, assets of a business because they were used as collateral for a loan.

A blanket lien is a type of lien in which a lender has the right to seize several, or even all, assets of a business because they were used as collateral for a loan. 

As business owners explore the different ways to obtain funding, the term “blanket lien” may come up with certain lenders. A lien itself is a legal claim against an asset that has been used as collateral. A blanket lien is a lien against multiple assets.

Let’s learn exactly how a blanket lien works when you might come across them, and how it can impact your business. That way, you can decide if you want to take on the additional risk of blanket liens when you are securing financing.

Definition and Examples of Blanket Liens

A blanket lien entitles a creditor to seize multiple business assets in the event of nonpayment by the debtor. With a legal claim to various assets, lenders are provided with increased protections versus only having a right to a single piece of collateral to recover any potential losses.

In essence, additional collateral means more security for the lender if they need to recoup their money if you fail to make your payments. The right to blanket liens are often standard practice with some lenders, depending on the types of business financing and programs. 

For example, let’s say that you are a small business owner who is requesting a $16,000 increase to your previous $10,000 Covid-19 Economic Injury Disaster Loan (EIDL) from the Small Business Administration (SBA). The SBA requires business assets be used as collateral for loans greater than $25,000.

In this case, you would have to use your business assets as collateral to secure the funding because your total loan would be $26,000. So, if you had a painting business you would likely have to use your inventory, accounts receivable, and delivery vehicle as collateral under the blanket lien. 

If you failed to repay the loan, the SBA could claim your assets and use them to offset its losses. You would lose those assets in that scenario, which is the risk borrowers must consider when they accept a secured loan.

How Blanket Liens Work 


Blanket liens work similarly to other liens with secured loans, or loans that require the backing of collateral for funding, only they are for a group of assets or all of a borrower’s assets. For example, if you have a transportation business, a lender may place require the right to place a lien against your entire fleet of vehicles versus just one car. 

Lenders will file a UCC-1 with your state. The UCC form is a legal financing statement that outlines the debtor, secured party, and collateral. Each secretary of state website will list the form publicly. 

“UCC” is short for Uniform Commercial Code, which is the set of laws that regulates business transactions, including all types of liens.

A blanket lien gives the lender a right to the assets if you defaulted on the loan. So, business owners should carefully assess the risk of losing their assets before securing a blanket loan.

The majority of blanket liens are effective for five years from the filing date. If your loan term is longer, your lender may file a continuation statement to extend the UCC filing.

Types of Blanket Liens

In some situations, a borrower might need to take out more than one loan using multiple business assets as collateral. Let’s say that ABC Painters applied for a loan with two lenders over the span of a year, both of which required the company to pledge all business assets at signing.  In this case, the business owner would be taking out a loan subject to a first and second blanket lien. 

Essentially, the lender that files the UCC-1 first would have priority over recouping debts in the event that the business defaults on the loan. The second lien holder would only be able to recover losses on assets left over after the first lien was satisfied.

Being that the first creditor takes legal precedence, business owners may find it more difficult to pledge the same assets to numerous lenders. 

UCC-1 filings are recorded in a public filing system, so other lenders and credit reporting agencies, among others, have free access. Businesses that pay off loans with blanket liens should file a UCC-3 form to have the lien terminated because lenders may not automatically remove records of the lien.

Key Takeaways

  • A blanket lien is a lien in which a lender has the right to claim multiple assets, often all of a business's assets, that were used as collateral for a loan.
  • Businesses considering loans with blanket liens should consider the risks of losing their assets in the event they cannot repay the loan.
  • The typical length of a blanket lien is five years, however, this can be extended if the terms of the loan are longer.

Article Sources

  1. Federal Housing Finance Agency. “Report on Collateral Pledged to Federal Home Loan Banks.” Page 8. Accessed Feb. 2, 2022.

  2. U.S. Small Business Administration. “COVID EIDL Loans Information as of September 8, 2021.” Page 4. Accessed Feb. 2, 2022. 

  3. New York State Department of State. “UCC Frequently Asked Questions | Department of State.” Accessed Feb. 2, 2022. 

  4. Legal Information Institute. “Duration and Effectiveness of Financing Statement.” Accessed Feb. 2, 2022. 

  5. UCC Financing Statement.” Accessed Feb. 2, 2022.