The Bank Inter-Creditor

Factoring companies frequently have to work in conjunction with banks to provide working capital to commercial borrowers. In most cases, the bank, or senior lender has an existing facility in place and has filed the required UCC-1 on the business assets as the collateral for the loan. The financing statement on the accounts receivables holds the borrower from using their invoicing to access more working capital. In certain situations where the borrower has been current on their bank payments, may have additional assets, or are willing to make a substantial payment on the outstanding loan, a unique arrangement can be made between the bank and factoring company. This arrangement is called an inter-creditor agreement. It is negotiated between the two lenders for the purpose of bringing cash flow to the client. It essentially allows the factoring companies position on the receivables to prime the banks. After the factoring company makes advances on creditworthy invoices, it can rest assured the collateral has been secured properly. Depending on the banks willingness to move forward with this arrangement, it can be a life saver to a struggling company in need of capital.