What is the function of a "floating lien" in secured transactions?

A floating lien is a specific type of security interest that extends to property that a debtor may acquire in the future. It essentially allows the lender to secure their interest not just in existing assets owned by the debtor at the time of the transaction but also in any property that the debtor may obtain later on. This is particularly useful in situations where the nature of the collateral may change over time, such as inventory or accounts receivable.

By granting a floating lien, the secured party has the flexibility to claim a security interest in future assets, which can provide a greater assurance of repayment since the collateral can grow as the business continues to operate and acquire new assets. This is especially beneficial for businesses that have inventory that fluctuates or in cases where the debtor's operational needs evolve.

The other options describe aspects of secured transactions that do not apply to the concept of a floating lien. For example, restricting the security interest to currently owned property does not capture the essence of a floating lien, which specifically encompasses future acquisitions. Similarly, limiting the secured party's interests geographically or protecting against collateral devaluation does not accurately reflect the central function of a floating lien in securing future or after-acquired property.