An intercreditor agreement is an agreement between creditors that addresses their rights relative to one another. It may cover priority over collateral, payments, enforcement and the treatment of proceeds. Its effect depends on the actual agreement and applicable law; it does not automatically remove a borrower's existing obligations.
A business may already have a lender with security over several asset categories when it applies to finance another machine. The proposed equipment lender needs to understand existing claims over that asset. The lenders may require an agreement, consent or release before the new transaction can proceed. The appropriate document is not the same in every case.
Related definition: What is a Second Position Lien (Second Lien)?.
Suppose a manufacturer has a bank operating line and wants a separate loan for a production machine. The bank's security documents and the equipment lender's proposed collateral overlap. The lenders and their lawyers examine whether and how each lender's rights will be limited. The parties might agree on priorities for specified assets, but that outcome must be documented; the borrower cannot assume it from the product names.
Ask which assets are covered, whose consent is needed, who prepares the documents and what conditions remain before funding. Clarify any legal costs and whether the agreement affects later borrowing, asset sales or enforcement. Provide an accurate existing-debt schedule rather than assuming the new lender can discover every relevant obligation without assistance.
It is not, by itself, approval of the new loan or confirmation that funds have been advanced. It also is not a substitute for reviewing the borrower's loan and security documents. Have qualified legal counsel explain the transaction-specific consequences.
For an asset-backed request, explore asset-based lending and equipment refinancing. Mehmi helps prepare and coordinate financing requests; lenders and their advisers determine the required arrangements.
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