- A fixed charge describes security attached to a specific, identifiable asset — a particular piece of equipment, a vehicle, or a parcel of real property — that the business generally…
- A floating charge, by contrast, describes security over a changing pool of assets — classically inventory or receivables — that the business is free to deal with in the ordinary course…
- Ontario's PPSA doesn't formally organize security interests into a "fixed charge" and "floating charge" category the way older common-law security law once did.
Ask a commercial lender about the security behind a business loan, and you'll still hear the terms fixed charge and floating charge — vocabulary that predates Ontario's modern personal property security law but hasn't disappeared from everyday lending conversation. Understanding what each term is getting at helps a business owner make sense of what a lender's general security agreement is really asking for.
This article explains the practical difference between the two ideas, and how Ontario's Personal Property Security Act ("PPSA") framework actually treats the assets involved today.
What "Fixed Charge" Means in Practice
A fixed charge describes security attached to a specific, identifiable asset — a particular piece of equipment, a vehicle, or a parcel of real property — that the business generally can't sell, replace, or dispose of free of the lender's interest without the lender's consent. The asset is fixed in the sense that it's a known, defined thing, not a category that changes from day to day.
If a business wants to sell equipment subject to a fixed charge, it typically needs the lender's agreement first, or must use the sale proceeds to satisfy the charge.
What "Floating Charge" Means in Practice
A floating charge, by contrast, describes security over a changing pool of assets — classically inventory or receivables — that the business is free to deal with in the ordinary course of business (selling inventory, collecting and replacing receivables) without needing the lender's consent for each transaction. The lender's interest "floats" over whatever currently sits in that pool, attaching to new stock or new receivables as they arise and releasing from items as they're sold or collected, in the ordinary course.
This flexibility is exactly why floating-style security suits inventory and receivables: a business couldn't function if it needed lender sign-off every time it sold a unit of stock.
How Ontario's PPSA Framework Actually Treats This Today
Ontario's PPSA doesn't formally organize security interests into a "fixed charge" and "floating charge" category the way older common-law security law once did. Instead, the modern framework is functional: what matters is what the security agreement actually says is covered, how the collateral is described, and how (and when) the interest is registered — regardless of the label used.
In practice, though, the underlying concepts are still very much alive. A general security agreement covering "all present and after-acquired personal property" typically behaves like a fixed charge over specific, identifiable assets (particular equipment) and like a floating charge over the changing pool of inventory and receivables — all within a single modern PPSA-governed agreement. Lenders and their lawyers still use "fixed" and "floating" informally to describe these different practical effects, even though the PPSA itself doesn't turn on that exact distinction.
Historically, a floating charge was said to "crystallize" into a fixed charge on default or insolvency, freezing the pool of assets in place. Modern Ontario secured lending doesn't rely on that formal crystallization concept as a legal trigger — loan default instead activates whatever enforcement rights the security agreement and the PPSA actually provide.
Why the Distinction Still Matters for a Business Owner
| Fixed-style collateral | Floating-style collateral | |
|---|---|---|
| Typical assets | Specific equipment, vehicles, real property | Inventory, receivables |
| Day-to-day dealing | Generally requires lender consent to sell or replace | Business deals with it freely in the ordinary course |
| Why lenders accept the flexibility | N/A — asset stays put | After-acquired property language keeps the lender's coverage current as the pool changes |
| Effect of default | Lender can typically look to seize or sell the specific asset | Lender can exercise whatever enforcement rights the security agreement and the PPSA provide over the pool as it exists at that time |
Even where a single general security agreement covers both types of collateral, understanding which of your assets behaves like a "fixed" item and which behaves like a "floating" pool helps you understand what you can deal with freely day-to-day, and what needs the lender's sign-off first.
Frequently asked questions
Does my lender's general security agreement always include both fixed and floating elements?
Often, yes. A typical general security agreement is drafted broadly enough to cover specific equipment (behaving like a fixed charge) alongside inventory and receivables (behaving like a floating charge), all within one document. The specific collateral description in your agreement controls what's actually covered.
Can inventory be secured by something that behaves like a fixed charge instead of a floating one?
In principle, a lender could try to restrict a business's ability to deal freely with inventory, but this is unusual and impractical for most operating businesses — floating-style flexibility over inventory and receivables is the norm precisely because a business needs to keep selling and replacing stock to function.
Is "floating charge" still a meaningful term to use in Ontario business financing today?
As a strict legal category under the PPSA, not really — the Act treats security functionally rather than by this older label. As shorthand for describing how security over a changing asset pool works in practice, the term is still commonly used by lenders and lawyers.
What actually happens to a floating-style charge when a business runs into serious financial trouble?
The lender's rights depend on the terms of the security agreement and the PPSA's enforcement framework, not on any automatic "crystallization" step. A lawyer should review the specific agreement and circumstances before assuming how enforcement would unfold.
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