Floating charge

Definition

A floating charge is security over assets that change day to day, such as stock and debtors, letting the business trade freely until default. On default it "crystallises", fixing onto the assets held at that moment. It differs from a fixed charge over a specific, unchanging asset.

Why it matters

A floating charge is a form of secured charge over company assets — again, distinct from a personal guarantee on your own assets. See secured vs unsecured.

In practice

Picture a UK limited company that borrows against its stock and trade debtors under a floating charge, alongside a fixed charge held over its premises or equipment. Day to day, nothing changes for the business: it keeps buying stock, selling it on, invoicing customers and collecting payment, all without needing the lender's sign-off for each transaction. That freedom to trade is the point of a floating charge — it lets working capital keep moving rather than freezing specific assets in place.

The position shifts the moment the company defaults or enters an insolvency process. At that point the charge crystallises: it stops floating over a moving pool and fixes onto whatever stock, debtors and other covered assets the company holds at that instant. From then on, the company can no longer deal freely with those assets — the lender's claim attaches to what exists at crystallisation, not to whatever might replace it afterwards.

How lenders read it

Lenders view a floating charge as a broader, more flexible form of comfort than a fixed charge, precisely because it moves with the business rather than pinning down one static asset. That flexibility is also its limitation: because the underlying assets can be sold, used up or replaced in the normal course of trade, a floating charge is generally treated as offering less certainty of recovery than a fixed charge over a specific, unchanging asset such as property.

Lenders typically read the two side by side — using fixed charges where certainty matters most, and a floating charge to capture the wider, changing pool of trading assets a company relies on to operate. See how this compares with a secured charge more generally, and how it sits alongside a personal guarantee, which looks to the director rather than the company's assets.