Why the document exists
Most growing businesses end up with more than one funder: a receivables line, an equipment lender, perhaps a property mortgage and later a mezzanine layer. Each wants security, and their claims can overlap. The intercreditor agreement sets out the order of priority and the rules of engagement between them.
Without it, lenders would decline to sit alongside each other. In practice, the absence of a workable intercreditor position is one of the most common reasons an otherwise sound funding plan cannot be assembled.
Ranking and carve outs
Ranking determines who is repaid first from enforcement proceeds. A receivables lender will typically insist on first ranking over the debtor ledger, while a term lender holds first ranking over fixed assets and property, with each carving the other's core collateral out of its own security.
Junior or mezzanine lenders sit behind the senior position and accept that their recovery depends on the senior debt being satisfied first. That subordination is why junior debt is priced higher.
Standstill and enforcement rights
The agreement usually restricts when a junior lender can accelerate or enforce, often through a standstill period during which only the senior lender may act. It also sets out how payments are applied and whether the junior lender can continue to receive interest while a default is outstanding.
For a borrower, the practical consequence is that the senior lender effectively controls the timetable in a stress scenario. Understanding that before you sign matters more than any individual clause.
What borrowers should push on
Ask for permitted debt baskets so that routine facilities, such as small equipment leases or vehicle finance, do not require fresh consent each time. Ask for a clear release mechanism so assets can be sold in the ordinary course without a negotiation.
Time is the hidden cost here. Intercreditor negotiation can add weeks to a transaction, so raise it at the term sheet stage rather than discovering it in legal drafting.
Frequently asked questions
Do I need one for every second facility?
Only where security overlaps. A clean carve out or a simple waiver letter is sometimes enough for smaller asset facilities.
Can I refinance one lender without the other's consent?
Usually not without a release, which is why a defined release mechanism is worth negotiating up front.
How long does it take to agree?
Two to six weeks is typical where both lenders are institutional and familiar with each other.
Last reviewed: 2026-09-06