What are floating charges?
submitted by Ammy

Beef_Smellington

It's a type of security interest. It covers a pool of assets in a company, like stock, inventory, or receivables. Unlike fixed charges, which attach to specific assets, a floating charge sort of floats over a class of assets until certain events, like a business going bust, cause it to become a fixed charge. This allows the company to continue using and disposing of the assets in the ordinary course of business until the charge "crystallizes".

Vankman

A floating charge is a kind of security that companies use to borrow money. It covers things like inventory or stock that can change over time. The company can sell or use these assets normally, but if they can't pay back the loan, the lender can take control of the assets once the charge "crystallizes."

UvvKorse

This can be a difficult concept to grasp because of weird terms like float and crystallize. I'll try to clarify, "for the late person."

If you don't get what crystallize means, in accounting terms, it's when the floating charge "locks in" and turns into a fixed charge. This usually happens if the company can't pay back its loan or gets into trouble. Once it crystallizes, the lender can then directly claim specific assets.

It's called a "floating" charge because it doesn't stick to just one property or asset at first. Instead, it "floats" over a bunch of assets that can change, like stock or money coming in, until something happens and it becomes fixed to certain assets.