Definition of Floating charge:
A floating charge, also known as a floating lien, is a security interest or lien over a group of non-constant assets. The assets may change in quantity and value. Companies will use floating charges as a means of securing a loan. Typically, a loan might be secured by fixed assets such as property or equipment, but with a floating charge, the underlying assets are usually current assets or short-term assets that can change in value.
A liability to a creditor which relates to the companys assets as a whole and may become fixed in particular circumstances (such as liquidation).
Current assets are those business possessions that the firm can quickly liquidate for cash and include the accounts receivable, inventory, and marketable securities, among other items.
Lien or mortgage on an asset that changes in quantity and/or value from time to time (such as an inventory), to secure the repayment of a loan. In this arrangement, no charge is registered against the asset and the owner of the asset can deal in it as usual. If a default occurs, or the borrower goes into liquidation, the floating asset freezes into its then current state crystallizing the floating charge into a fixed charge and making the lender a priority creditor. See also fixed charge.
How to use Floating charge in a sentence?
- A floating charge is used as a means to secure a loan for a company.
- A floating charge is a security interest or lien over a group of non-constant assets, that change in quantity and value.
- The assets used in a floating charge are usually short-term current assets that the company consumes within one year.
- On 12 th August 1988 Wallace entered into cross-guarantees with the other companies in the Prospective Group in favour of Midland and granted to Midland a debenture containing fixed and floating charges to secure its liability.
Meaning of Floating charge & Floating charge Definition