One of the main reason why floating charge came into existence was

to allow businesses to buy and sell business inputs and stocks without
affecting their day-to-day operations. They can obtain funding by
keeping a charge on their inventories as collateral without interrupting
their business operations.

Table of Contents
1. Meaning of Floating Charge
2. Characteristics of Floating Charge
3. Advantages of Floating Charge
4. Difference Between Floating Charge and Fixed Charge
5. When Does a Floating Charge Become Fixed?
6. Conclusion

After understanding what is floating charge, let us understand the

characteristics of the same.

Characteristics of Floating Charge

Some of the characteristics of a floating charge are:

 Floating charge allows unrestricted use of the asset held as

security.
 It is a cover against all the assets of the business. As and
when the value of the assets change, the value of the
charge also changes.
 In case of floating charge, the borrower is not required to
obtain the consent of the lender. The company can buy or
sell the charged asset freely in the normal course of
business.
Advantages of Floating Charge
Floating charge is very beneficial. Let us see some of the benefits of
floating charge.

 Floating charge can be created even when the company

does not have any fixed asset.
 It offers a lot of freedom to the business owners.
 The business is free to deal with the asset as if it was never
secured. Business does not need any permission or consent
from the lender before buying or selling the asset.
 A floating charge holder is always better protected than an
unsecured creditor.
  In case of liquidation of the company, the floating charge
holder can appoint an administrative receiver who will
ensure maximum return to them.
Difference Between Floating Charge and
Fixed Charge
Floating charge is different from the fixed charge. The fixed charge is
attached to one or more assets while a floating charge is attached to
all the company’s assets both present and future, which the company
uses in the ordinary course of business.

In simple words, the fixed charge can be against tangible assets like
equipment, building or intangible assets like patents, trademark. It is a
mortgage against a particular asset. Like for example, if a business
obtains a loan on the fixed charge basis by mortgaging its building,
then, in that case, the business cannot sell or dispose off this building
until it repays the entire loan.

On the other hand, a floating charge is created against a current asset,

the value, and size of which keeps on fluctuating. It does not affect the
ability of the business to use the underlying asset in the normal
business operations. The business can sell, transfer or dispose off
these assets as and when required. For example, if a business obtains
a loan on floating charge basis against its inventory, then it can sell or
dispose it off in the normal course of business without obtaining any
consent from the lender. As and when the inventory gets sold or
repurchased, the float value shifts. Hence, it is called floating charge.

Below are few points of differences between fixed and floating charge.

Fixed Charge Floating Charge

It is created on the entire company’s

It is created on a particular asset.
property.
A business cannot deal in the asset A business can sell or dispose off any
subject to fixed charge. asset under floating charge.

In no case, a fixed charge can In case of certain events, a floating

become a floating charge. charge may become a fixed charge.

When Does a Floating Charge Become

Fixed?
The floating charge becomes fixed charge only when the company
goes into liquidation or ceases to trade or fails to meet the terms of
payment i.e. non-repayment of the loan undertaken. In such cases,
the floating charge gets converted into fixed charge. The process of
conversion of a floating charge security into fixed charge security is
termed as Crystallization.

Once the security is crystallized, it cannot be sold or disposed off by

the borrower. In addition, the lender obtains the right to take the
possession of the crystallized security.

Conclusion
Floating charge allows flexibility to the receiver and is less of a
hindrance for the lender. Overall, there are several good reasons that
prove floating charge as a great option for banks and other lenders. 1–3

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