When it comes to money in business, there are lots of phrases that are mentioned. Something you may hear about are fixed and floating charges. In this blog, we’ll be letting you know what these are.
At 1st Business Rescue, we are often asked about these various charges. If you want to know more about them, keep reading!
What are fixed and floating charges?
These charges are a way that your business can offer security for debts, like a guarantee.
Fixed charges
When it comes to fixed charges, it’s like putting a specific asset down as security. A fixed charge could be a mortgage on a property, business equipment or intellectual property. Fixed charges are items that can’t be sold or traded without the fixed charger’s approval.
Without the charger’s approval, you cannot sell anything on a fixed charge. This means that if you enter liquidation, the charge holder will have a big say in what happens and who you use for the insolvency procedure.
If things go wrong and your business cannot pay its debts, your charge holder will have first dibs on the property or the machinery in your business.
Floating charges
Floating charges are a little bit different. They cover things that change, such as stock or cash in the bank. You might notice that businesses that hold a lot of stock may have a floating charge above it.
It would be unrealistic to have a fixed charge on something like stock, as you’d need to call the charger up each time you make a sale. A floating charge is more fluid and allows you to continue trading without too much interference from the floating charge holder.
What happens to a floating charge in liquidation?
If your business enters liquidation, the floating charge crystallises and becomes a fixed charge. The floating charge means that up until the point of liquidation, you can sell all the stuff you’ve got even though there’s a floating charge over it.
Fixed vs. floating charges
A fixed charge is fixed to an item, such as machinery, a vehicle, or a building. In contrast, floating charges are for things that go in and out on a daily basis, such as stock.
Fixed charges are usually safer for those who are lending the money, whereas floating charges work better for you, the borrower.
Don’t hesitate to contact us if you have any questions regarding fixed and floating charges. We’re more than happy to help.
I'm Chris Worden, Managing Director at 1st Business Rescue. With over 7 years of experience, I help UK directors navigate the complex world of UK corporate insolvency. We offer free and independent advice to UK directors and advise them about what options may be available to them if their limited company starts to struggle.
I am passionate about helping other directors overcome their business challenges and get back on their feet, as I was once in the same position as them. I had a business that became insolvent, and the advice out there was confusing and overwhelming. I am here to provide honest and valuable advice to UK directors.
I am proud to say that we are one of the only 5-star corporate insolvency companies on Trustpilot with hundreds of 5-star reviews, and we publish videos weekly on our YouTube channel. Our channel is designed to educate UK directors about insolvency and debt advice. Check it out here:
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