Intercreditor Agreement

When setting up accounts receivable factoring while there is a bank loan in place will require cooperation from both commercial lenders. The bank, or senior lender, has filed a financing statement (UCC-1) that holds business assets as collateral. A UCC filing on accounts receivable prohibits any subsequent lender from using the same assets as collateral. The bank loan agreements will hold the borrower in loan default. Depending on what collateral was used when the bank loan was initially secured, some or all of the accounts receivable may be released. Usually this would mean some sort of real estate equity is involved. But certain conditions may allow for the bank to release a portion of their security position. A significant pay down of the outstanding note and aggressive payoff schedule of the remaining balance could allow for the factoring company to get involved with support of additional operating capital. This scenario is best when the borrower has been flawless in their monthly payments and communications. The resulting document between the bank and factoring company is the intercreditor agreement.