Fixed vs Floating Charges in New Zealand: SME & Startup Funding Examples

If you’ve ever applied for business finance in New Zealand (or you’re about to), there’s a good chance you’ve seen the phrase fixed vs floating charges pop up in a loan offer, term sheet, or security document.

It can feel like one of those “bank lawyer” concepts that you’re meant to nod along to. But the difference can matter in practice - especially if you’re a founder, director, or small business owner putting company assets on the line to secure funding.

In this guide, we’ll break down what “fixed” and “floating” security is trying to capture in practical terms, how it typically shows up in SME and startup funding, and what to look out for before you sign anything.

What Is The Difference Between Fixed vs Floating Charges?

At a high level, both “fixed” and “floating” security are ways a lender protects itself by taking rights over some (or all) of your business assets if the business can’t repay its debt.

NZ-specific note: New Zealand secured lending over most non-land assets is primarily governed by the Personal Property Securities Act 1999 (PPSA). Under the PPSA, lenders generally take and register a security interest in “personal property”. The labels “fixed” and “floating” are still commonly used in funding documents and conversations, but they don’t always map neatly onto PPSA concepts. In practice, the “fixed vs floating” distinction usually describes how much control the lender has over particular assets (and how freely you can deal with them) and can also be relevant in insolvency.

They work differently depending on the type of asset and how your business uses it day-to-day.

What Is A Fixed Charge?

A “fixed charge” usually refers to security that attaches to a specific asset (or a specific class of assets) that isn’t meant to be freely sold or replaced in the normal course of business.

With fixed-style security, you generally can’t dispose of the asset without the lender’s consent (or at least without complying with conditions in the security document).

Common examples of assets that might be treated as fixed-style security include:

• Land and buildings (commercial premises)
• High-value equipment or machinery
• Vehicles (depending on the arrangement)
• Intellectual property (in some deals)
• Shares in a subsidiary (less common for smaller businesses, but possible)

What Is A Floating Charge?

A “floating charge” usually refers to security over a changing pool of assets - things that move in and out of the business as you trade.

It “floats” because, while your business is operating normally, you can generally buy, sell, and replace these assets without getting permission from the lender every time. If certain trigger events happen (like default), funding documents often give the lender stronger control rights over those assets (and may restrict dealings from that point).

NZ-specific note: You’ll often hear people describe this shift in control as “crystallisation”. That term is more common in some overseas jurisdictions and older “charge” language. In NZ PPSA practice, what matters is usually the contractual enforcement rights in the security agreement (and PPSA enforcement steps), plus how the lender has perfected its interest and the resulting priority.

Assets commonly covered by floating-style security include:

• Stock / inventory
• Accounts receivable (money customers owe you)
• Cash in bank accounts (depending on wording and account control arrangements)
• General business assets not specifically fixed

Why The “Fixed vs Floating Charges” Distinction Matters In Real Life

The difference isn’t just academic. It affects:

• How freely you can run your business (for example, whether you can sell equipment or move cash)
• How a lender ranks compared to other creditors if things go wrong (priority can depend on PPSA rules, timing, and how security is perfected)
• What assets are “spoken for” when you try to raise additional funding later
• What a buyer sees if you sell the business (because the company may be carrying secured debt)

In other words: understanding fixed vs floating charges (and what your documents actually allow or restrict) can help you avoid agreeing to security that quietly limits your ability to operate and grow.

How Charges Are Created And Registered In New Zealand (And What To Check)

In New Zealand, security over personal property is commonly dealt with under the Personal Property Securities Act 1999 (PPSA), and lenders often register their security interests on the PPSR (Personal Property Securities Register).

Security over land is generally registered on the land title system, rather than PPSR.

From a business-owner perspective, the big “don’t miss” items are:

• What document creates the security (often a General Security Agreement or a facility agreement with security terms)
• What assets are covered (specific items vs “all present and after-acquired property”)
• Whether you’re restricted from selling or dealing with assets (this is where “fixed” vs “floating” mechanics show up in practice)
• What enforcement/trigger rights the lender has and when tighter controls can apply (for example, on default)
• Whether directors have to give personal guarantees (this is separate from the company’s security, but often bundled in practice)

If you’re not sure what you’re agreeing to, it’s worth getting legal eyes on the security package before you sign. It’s much easier to negotiate upfront than to unwind restrictions later.

Practical Funding Examples: When SMEs And Startups See Fixed vs Floating Charges

Let’s make this real. Here are common funding scenarios where fixed vs floating charges come up for New Zealand SMEs and startups.

Example 1: Equipment Finance For A Trade Or Manufacturing Business

Imagine you run a growing manufacturing business and you’re financing a $120,000 piece of machinery.

A lender may take fixed-style security over that specific machine (because it’s identifiable and valuable). They might also want a broader security interest over other business assets to reduce their risk.

In practice, you might see:

• Fixed-style security over the financed equipment
• Floating-style security (or a broad “all assets” security interest) over stock, receivables, and general assets

What to watch: if your security terms say you can’t sell, relocate, or modify the machinery without consent, that’s consistent with fixed-style security - but you should understand the operational impact. For example, could that slow down upgrades or replacing equipment later?

Example 2: Working Capital Facility For A Retail Or E-Commerce Business

Now imagine you run a retail business that needs a revolving facility to buy stock ahead of busy seasons.

Because your inventory is constantly changing, it’s often more practical for a lender to rely on floating-style security over stock and receivables.

You might see security described as covering:

• “inventory/stock”
• “accounts receivable/book debts”
• “all present and after-acquired personal property”

What to watch: some documents still operate like fixed-style security for certain assets by requiring you to pay sale proceeds into a controlled account, restricting withdrawals, or limiting what you can do with receivables. So even if security is described as “floating”, the practical restrictions can be much tighter depending on the drafting.

Example 3: Bank Loan For A Business That Owns Commercial Premises

If your company owns land (like a workshop, office, or warehouse), lenders often prefer fixed security over that land. Land is high value and doesn’t move around, so it’s classic fixed-charge territory.

It’s also common to see a combination approach:

• Mortgage or fixed security over land
• Additional security over business assets (sometimes under a General Security Agreement)

What to watch: this can limit future refinancing options or the ability to sell the property without lender involvement. If you’re planning growth, it’s worth thinking ahead about whether you’ll need that property unencumbered later (for example, to use as security for a larger expansion).

Example 4: Startup Debt (Venture Debt Or Bridging Finance)

Early-stage startups don’t always have “hard” assets like property or machinery. But that doesn’t mean lenders won’t seek security.

A lender might look for:

• a security interest over accounts and cash (sometimes with account control mechanics)
• a security interest over IP (depending on the business)
• security over all present and after-acquired property

What to watch: startups often raise equity later. If you sign a broad all-assets security now, it can complicate later rounds - investors will want to understand what security is sitting ahead of them, and whether the lender has controls that restrict spending or asset transfers.

If your capital raise includes instruments like a Convertible Note or a SAFE Note, it’s especially important to understand how secured debt interacts with your future cap table and fundraising plans.

What A General Security Agreement Usually Means For Fixed vs Floating Charges

A lot of business owners first encounter fixed vs floating charges through a General Security Agreement (often called a GSA).

In plain terms, a GSA is often drafted to give the lender security over:

• all present and after-acquired property of the company (meaning what the company owns now and what it acquires later), and/or
• specific categories of assets

Even though “fixed vs floating” language may not always be front-and-centre in a GSA, the agreement can create the practical effect of both:

• fixed-style controls over certain assets (e.g. restrictions on selling key equipment, assignment of insurance proceeds), and
• floating-style coverage over circulating assets (stock, receivables) while the business continues trading in the ordinary course (subject to the agreement and PPSA enforcement rights)

Why It Matters For Day-To-Day Business Decisions

If your business is secured under a broad security agreement, you may find that certain actions require consent, including:

• selling major assets
• granting security to another lender
• transferring IP or key contracts
• making certain distributions (depending on covenants)

This isn’t always a deal-breaker - plenty of businesses run smoothly with secured lending in place. The key is knowing what you’re agreeing to, and making sure the restrictions match how your business actually operates.

Common Pitfalls For Small Businesses (And How To Avoid Them)

When you’re busy securing funding, it’s easy to focus on the interest rate and repayment period. But the security package (including the practical difference between fixed-style and floating-style security) is often where the long-term risk sits.

Pitfall 1: You Don’t Realise “All Assets” Security Can Limit Future Funding

If one lender has a security interest over all present and after-acquired property, a future lender may be reluctant to come in unless they can rank ahead, share security, or get a carve-out.

Practical tip: if you think you’ll need multiple funding sources (for example, equipment finance plus working capital plus a shareholder loan), ask what security is truly necessary and whether certain assets can be excluded.

Pitfall 2: Founders Mix Up Company Security With Personal Liability

A charge over company assets is one thing. A personal guarantee is another.

SMEs and startups often get asked for both, especially where the business doesn’t have long trading history.

Practical tip: make sure you clearly understand:

• what assets the company is offering as security, and
• whether you (as a director/shareholder) are personally on the hook if the company can’t pay

That conversation often sits alongside decisions about governance documents like a Shareholders Agreement and a Company Constitution, because funding terms can affect control and decision-making inside the company.

Pitfall 3: You Overlook How Security Interacts With “Business As Usual”

Some security documents include covenants that sound reasonable but can create friction, like restrictions on:

• selling inventory below a threshold
• changing suppliers or major contracts
• taking on new debt
• paying dividends or making shareholder distributions

Practical tip: check whether the finance documents match your operating reality. For example, if you’re a seasonal business and stock levels swing heavily, do the covenants allow that?

Pitfall 4: You Don’t Think About What Happens If You Sell The Business

If you sell your business later (either via an asset sale or share sale), secured debt and charges can affect:

• how sale proceeds are applied (a lender may need to be repaid at settlement)
• what assets can be transferred “free and clear”
• whether buyers require discharges of security

It’s one reason why it’s smart to approach any sale with the right documents and planning in place - including an Asset Sale Agreement where relevant.

Key Takeaways

• People often use “fixed vs floating charges” as shorthand for how lenders take security over business assets and how freely you can deal with those assets day-to-day.
• A fixed charge typically attaches to specific, non-circulating assets (like property or major equipment) and often restricts selling or dealing with that asset without consent.
• A floating charge generally covers circulating assets (like stock and receivables) and usually lets you trade normally, with tighter controls often kicking in on default or other trigger events.
• In New Zealand, most non-land secured lending is governed by the PPSA, so priority and enforcement will depend on your security agreement terms and PPSA rules (not just the label “fixed” or “floating”).
• Many funding arrangements combine both approaches in one security package, especially where the lender wants broad coverage and stronger control over key assets.
• Broad “all assets” security can impact your ability to raise future funding, restructure, or sell the business - so it’s worth understanding the practical restrictions before you sign.
• Security over company assets is different from personal guarantees, and founders should be clear on what liability sits where.

If you’d like help reviewing funding terms or security documents (including fixed vs floating charges), you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.