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GLOSSARYTERMS AS A CREDIT DESK USES THEM

Floating charge

What is a floating charge, and why can it shrink without anyone breaching anything?

ONE OF 180 TERMS · FREE · NO SIGNUP

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

// THE SHORT ANSWER

A floating charge is security over a changing pool of assets — stock, receivables, cash — that the business keeps buying, selling and collecting in the ordinary course, so its value at any moment is whatever the balance sheet holds that day. Its weaknesses arrive together on the day it is needed: those assets have usually run down before a failure, and in many countries preferential creditors are paid from them first. In New Zealand and Australia the general security agreement does this work, over circulating assets, beside a fixed charge on named ones.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

// WHAT IT IS NOT

A floating charge is not a fixed charge: a fixed charge sits on a named asset that cannot be sold without the lender's consent; a floating charge lets the business deal with what it covers until the charge is enforced.

// WORKED IN

// NEXT TO IT

SECURITY AND RANKING

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