Are you a small business owner who has taken out a loan from the Small Business Administration (SBA)? If so, you may need to know about a key legal document called the SBA loan subordination agreement.
A subordination agreement is a legal document that establishes the priority of different creditors when it comes to collecting payments from a borrower. In the case of an SBA loan, a subordination agreement would clarify which parties have priority when it comes to receiving payments from the borrower.
Why is a subordination agreement necessary for SBA loans? Well, SBA loans are often made in conjunction with other loans, such as loans from commercial banks or other lenders. In these cases, the subordination agreement helps to clarify the order in which these lenders will be repaid.
For example, say a small business takes out a loan from a commercial bank and an SBA loan. If the business defaults and stops making payments, both the bank and the SBA would be owed money. In this case, the subordination agreement would establish whether the bank or the SBA has the right to be repaid first.
There are a few key things to know about SBA loan subordination agreements. First, they typically require the borrower to agree that the SBA loan will be subordinate to other loans in the event of a default. This means that the SBA would only be repaid after other creditors have received their payments.
Second, SBA loan subordination agreements often require the borrower to obtain written consent from the SBA before taking certain actions, such as selling assets or taking out new loans. This helps to protect the SBA`s interests and ensure that it is not unfairly disadvantaged by the borrower`s actions.
Finally, it`s worth noting that SBA loan subordination agreements can be complex legal documents that require expert attention. If you`re a small business owner who has taken out an SBA loan, it`s important to work with an experienced attorney who can help you navigate the subordination agreement and ensure that you`re meeting your legal obligations.
In conclusion, SBA loan subordination agreements are an important legal document for small business owners who have taken out loans from the Small Business Administration. By clarifying the order in which different creditors will be repaid, these agreements help to protect the interests of all parties involved and ensure that loans are repaid in a fair and orderly way. To ensure that you`re meeting your obligations as a borrower, it`s important to work with an experienced attorney who can guide you through the subordination agreement process.