First charge

Definition

A first charge is the senior security interest registered over an asset. If the asset is sold, the first-charge holder is repaid in full before any lower-ranking charge-holder sees a penny.

In plain terms

It is pole position for repayment. Because the risk is lowest, first-charge lending is usually the cheapest secured money available.

Why it matters for your company

Once your main asset carries a first charge, further borrowing against it must rank behind, which limits and prices it. Understand your registered charges before pledging assets twice.

In practice

Picture a small UK limited company that owns its trading premises outright and takes out its first secured loan against that property. That loan becomes the first charge, registered at Companies House, and the lender behind it holds pole position if the property is ever sold to recover what is owed. Directors often only feel the practical weight of this when they later want to raise more money against the same asset.

At that point, any new lender is offered a lower rung on the ladder — a fixed charge or second charge — and knows it, so it prices and structures the deal accordingly, sometimes requiring a deed of priority to formally confirm where it sits. Directors comparing offers should always ask a prospective lender directly where its charge would rank, rather than assuming, since the answer changes both the cost and the terms on offer.

How lenders read it

A first-charge lender reads the position as close to best-case for recovery, because nothing stands between it and the sale proceeds of the secured asset. That confidence is exactly why first-charge debt tends to sit at the sharper end of pricing compared with anything ranking behind it.

Lenders assessing a company's overall borrowing capacity will also look at whether its key assets already carry a first charge, since that shapes what further finance can realistically be secured and on what basis. A company with unencumbered assets generally has more flexibility than one where the strongest security has already been allocated to an existing first-charge holder.