What is an Encumbered asset?

Encumbered asset (Definition)

An encumbered asset is an asset that is owned by one business, but another business has a legal claim to it. Common encumbered assets are properties with a lien (the right to keep possession of a property that belongs to another party until the debt owed by the other party is discharged) placed on them. Encumbered assets can be sold but the sale will require approval from both the buyer and the seller and will be subject to restrictions on their use and/or sale. This situation is also often connected to the stock market. For example, a business may own stocks and want to use those as collateral to borrow money to purchase new equipment, those shares then become encumbered assets. If the business defaults on the loan, the lender may claim the stocks as payment of all outstanding debt.