Floating Charge

A floating charge is a type of security interest used by lenders to secure loans against a borrower's assets. Unlike a fixed charge, which is tied to specific assets, a floating charge allows the borrower to use and sell assets in the ordinary course of business. The charge "floats" over a group of assets, such as inventory or receivables, but if the borrower defaults on the loan, the lender can "crystallize" the charge, turning it into a fixed charge, allowing them to claim specific assets to recover the defaulted debt. This arrangement provides flexibility while offering protection to lenders.