Small Business Administration (SBA) Intercreditor Agreement: What You Need to Know
Running a small business often requires obtaining loans from various lenders. When these lenders include both the Small Business Administration (SBA) and other private lenders, it is important to understand the SBA intercreditor agreement.
What is an SBA Intercreditor Agreement?
An SBA intercreditor agreement is a legal document that outlines the rights and responsibilities of the SBA and private lenders involved in a small business loan. Essentially, it sets the terms of how repayment will be handled in the event that the borrower defaults on their loan.
Why is an SBA Intercreditor Agreement Important?
Without an intercreditor agreement, it can be difficult to determine the order in which lenders will be repaid in the event of a default. This can lead to confusion, disputes, and delays in the repayment process.
The SBA intercreditor agreement provides clarity and structure to the repayment process, defining the role of each lender and establishing a clear hierarchy for repayment.
What Does an SBA Intercreditor Agreement Cover?
An SBA intercreditor agreement typically covers the following:
1. The rights of each lender in the event of a default, including liens and voting rights.
2. The order of repayment in the event of a default, which is usually determined by the seniority of each lender`s position.
3. Requirements for lender communication and cooperation in the event of a default.
4. Terms for modifying the loan agreement, if necessary.
Overall, the SBA intercreditor agreement ensures that all lenders are fairly represented and protected in the event of a default.
How Can You Ensure Compliance with an SBA Intercreditor Agreement?
In order to ensure compliance with the SBA intercreditor agreement, it is important to:
1. Understand the terms of the agreement and follow them closely.
2. Keep accurate records of all loan agreements and payments.
3. Maintain open lines of communication with all lenders.
4. Seek legal counsel if necessary to address any disputes or issues that may arise.
By following these steps, small business owners can navigate the complexities of an intercreditor agreement and ensure that their loans are managed effectively.
In conclusion, an SBA intercreditor agreement is an important legal document that outlines the rights and responsibilities of all lenders involved in a small business loan. By understanding the terms of the agreement and following them closely, small business owners can ensure that their loans are managed effectively and that all lenders are fairly represented and protected.