Glossary · legal

Intercreditor agreement ICA

Also called ICA, creditor agreement, standstill agreement.

A contract between two or more lenders to the same borrower setting out who ranks first, who may enforce and when, and how proceeds are split — negotiated between the lenders, with the borrower largely a spectator.

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What it means

Lien priority under Article 9 is determined by filing order. An intercreditor agreement overrides that by contract, and adds the operational rules that priority alone does not supply.

What it settles

  • Priority: which lender's lien ranks first as to which collateral. Split-collateral arrangements are common — a working capital lender first on receivables and inventory, an equipment or real estate lender first on fixed assets
  • Standstill: how long the junior lender must wait after a default before enforcing, giving the senior time to act
  • Payment blockage: whether the junior can accept payments while the senior is in default, and for how long they must stop
  • Access and use: whether the senior may enter the junior's premises or use its collateral while liquidating
  • Turnover: the junior's obligation to hand over proceeds it receives out of order
  • Amendment limits: how much the senior may increase its debt without the junior's consent
  • Insolvency provisions: voting, DIP financing consent, adequate protection

Against a subordination agreement

A subordination agreement is usually one-way and short: the junior agrees to rank behind. An intercreditor agreement is bilateral and operational. In small-business deals the two words are used interchangeably; in the documents they are not.

Where this one catches people

Merchants and brokers treat "get a subordination" as an administrative step. It is not. The senior lender has no obligation to sign anything, has a covenant portfolio that a new lien may breach, and often has a policy against subordinating at all. Where it will sign, it may charge a fee, require paydown, or impose new covenants. Assume weeks, assume a cost, and assume it may simply be refused — and note that a junior lender that funded before the agreement was in place has already created the default it was trying to paper over.

Where you will meet this term

Term Loan Business Line of Credit SBA Loan Equipment Financing Asset-Based Lending

Read next

Blanket lienA security interest over substantially everything the business owns, perfected by a UCC-1 financing statement… CovenantA promise in the loan documents about what the business will do, will not do, or will keep true, breach of wh… Junior lienA security interest that ranks behind another on the same collateral, entitled only to what is left after the… Lien positionThe order in which secured creditors are paid out of the same collateral — decided almost always by who filed… Subordination agreementThe signed document by which one creditor accepts a position behind another, specifying which obligations and… UCC-1 financing statement (UCC-1)A short public notice filed with a state office announcing that a creditor claims a security interest in desc…

Intercreditor agreement — common questions

What does intercreditor agreement mean?

A contract between two or more lenders to the same borrower setting out who ranks first, who may enforce and when, and how proceeds are split — negotiated between the lenders, with the borrower largely a spectator.

Where does intercreditor agreement catch people out?

Merchants and brokers treat "get a subordination" as an administrative step. It is not. The senior lender has no obligation to sign anything, has a covenant portfolio that a new lien may breach, and often has a policy against subordinating at all. Where it will sign, it may charge a fee, require paydown, or impose new covenants. Assume weeks, assume a cost, and assume it may simply be refused — and note that a junior lender that funded before the agreement was in place has already created the default it was trying to paper over.

Is intercreditor agreement the same as an interest rate?

Intercreditor agreement is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.

Which products does intercreditor agreement apply to?

Term Loan, Business Line of Credit, SBA Loan, Equipment Financing, Asset-Based Lending.

Is there a worked example of intercreditor agreement?

Not on this entry. Where a term is arithmetic, the arithmetic is shown; this one is not primarily a calculation.

What else should I read alongside intercreditor agreement?

Blanket lien, Covenant, Junior lien, Lien position, Subordination agreement.

Has this definition been checked?

Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.

Is this legal advice?

No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.

Can I suggest a term?

Yes — [email protected]. The glossary grows from what people are actually shown in contracts.