Updated 2026-05-19

Intercreditor agreement

A contract between creditors setting who has priority over shared collateral.

Why it matters

Factors often require intercreditor agreements when a business has multiple secured lenders, such as a bank line of credit and equipment financing that create competing UCC liens. Without an intercreditor agreement, the factor security interest in receivables may conflict with a blanket lien held by a bank. The intercreditor agreement defines which creditor has priority over which assets and under what circumstances. Negotiating an intercreditor agreement can take weeks, delaying the start of factoring. Sellers should notify their other lenders early when exploring factoring to give time for intercreditor review.

How it appears in contracts

Intercreditor agreement requirements appear in the Conditions Precedent or Program Qualification section of the factoring agreement. The factor typically will not begin funding until any existing blanket lien holders have signed a subordination or intercreditor agreement acceptable to the factor. The intercreditor agreement itself is a separate document negotiated between the factor and the other lender. Some bank credit agreements require bank consent before granting subordination, and violation of this requirement may trigger a default under the bank line. Sellers should review their bank credit agreement for any restrictions on subordination before approaching a factor.

Related terms

• Reserve
• Recourse
• Chargeback
• Notice of assignment