Springing Lien

Definition

A security interest that becomes effective only upon the occurrence of a specified trigger event, such as a covenant breach, a decline in borrower creditworthiness, or the drawing down of a revolving credit facility beyond a certain threshold. Springing liens provide lenders with additional collateral protection when needed while allowing borrowers to operate without encumbered assets during normal business conditions. They are commonly used in asset-based lending and revolving credit facilities.