Investopedia

Continue to Site »

Floating Charge

Filed Under » ,
Dictionary Says

Definition of 'Floating Charge'

A security (i.e. mortgage, lien, etc.) that has an underlying asset or group of assets which is subject to change in quantity and value. Corporations can use floating charges and it does not affect their ability to use the underlying asset as normal. Only if the company fails to repay the loan and/or goes into liquidation, does the floating charge become "crystallized" or frozen into a fixed charge. At that point the lender becomes the first-in-line creditor to be able to draw against the underlying asset and/or its value to recoup its loss on the loan.
Investopedia Says

Investopedia explains 'Floating Charge'

Consider an example of a floating charge:

A business that operates in rental of large pieces of machinery might apply for a mortgage to obtain a new building. The lender will make the loan and take a floating charge using the rental equipment (the businesses' inventory) as the asset to secure the mortgage. Although the machinery could be repossessed in the event that the business failed to make timely repayment on the mortgage, the floating charge does not prohibit the company from continuing to rent the machinery out as normal.

Articles Of Interest

  1.

    In Small Business, Success Is Spelled With 5 "C"s

    Incorporating these steps will help your business thrive in a competitive market.

  2. 5 Things To Know About Asset Allocation

    Overwhelmed by investment options? Learn how to create an asset allocation strategy that works for you.

  3. Analyzing Retail Stocks

    To analyze retail stocks, investors need to be aware of the most common metrics used. Find out what they are.

  4. Measuring Company Efficiency

    Three useful indicators for measuring a retail company's efficiency are its inventory turnaround times, its receivables and its collection period.

  5. Find Investment Quality In The Income Statement

    Use these key attributes to uncover top-level investments.

  6. Operating Cash Flow: Better Than Net Income?

    Differences between accrual accounting and cash flows show why net income is easier to manipulate.

  7. Inventory Valuation For Investors: FIFO And LIFO

    We go over these methods of calculating this component of the balance sheet, and how the choice affects the bottom line.

  8. Intangible Assets Provide Real Value To Stocks

    Intangible assets don't appear on balance sheets, but they're crucial to judging a company's value.

  9. What Is A Cash Flow Statement?

    Learn how the CFS relates to the balance sheet and income statement as a part of a company's financial reports.

  10. Understanding The Cash Conversion Cycle

    Find out how a simple calculation can help you uncover the most efficient companies.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Abatement Cost

    A cost borne by many businesses for the removal and/or reduction of an undesirable item that they have created.

  2. Validation Period

    The amount of time necessary for the premium on an insurance policy to cover the commissions, the cost of investigation, medical exams and other expenses associated with the issuance of the policy.

  3. Winner's Curse

    Because of incomplete information, emotions or any other number of factors regarding the item being auctioned, bidders can have a difficult time determining the item's intrinsic value. As a result, the largest overestimation of an item's value ends up winning the auction.

  4. Glocalization

    A combination of the words "globalization" and "localization" used to describe a product or service that is developed and distributed globally, but is also fashioned to accommodate the user or consumer in a local market.

  5. Disaster Loss

    A special type of tax-deductible loss, similar to a casualty loss, where a loss has been incurred by taxpayers who reside in an area that has been designated as a federal disaster area by the President.

  6. Fool In The Shower

    The notion that changes or policies designed to alter the course of the economy should be done slowly, rather than all at once.
Trading Center