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Subordinated Loan Agreement Basics

When a lender wants to sell your loan to another lender, they need a Subordinated Loan Agreement to spell out the terms. Or, if you are a junior creditor who wants to tempt a senior creditor into lending to a certain borrower, a Subordinated Loan Agreement could help, for example, by promising them first dibs on repayments.

Use the Subordinated Loan Agreement document if:

  • You would like to induce a Senior Creditor to lend money to a particular Borrower which you have loaned money to as a Junior Creditor and are willing to subordinate your loans to Senior Creditor.
  • You need to borrow money but the Lender is requesting a signed statement ensuring their own will have priority over other existing loans.
  • You are lending money to a Borrower and want assurance that your loan will have priority over existing loans.

There are a few reasons why you might want to sign up as a junior creditor. Maybe you formally loaned money to a friend to start their business. Now they need more money than you can offer. You can woo a senior creditor into loaning them money if you agree to be a junior creditor. When that happens, all loan repayments go to the senior creditor first. Or maybe you want to be the senior creditor. And you want to make sure you get repaid first. And if you're the one who needs a loan? The creditor might want a written promise that they're your number one priority - and they'll get paid first. Think carefully before designating senior and junior creditors. Once you know your best move, a Subordinated Loan Agreement helps make it legal.

Sample Subordinated Loan Agreement

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