Reference
Intercreditor agreements: what they actually settle
Once a business has more than one lender holding security over the same assets, someone has to decide who gets paid first, who can act if things go wrong, and what happens if one lender wants to enforce while another doesn't. An intercreditor agreement is the document that answers those questions before they become a dispute.
Recognition
A new lender wants security, and the existing one wants an intercreditor agreement first
This usually isn't the existing lender trying to block the new facility. It's a normal condition once more than one party holds security over overlapping assets: the parties fix the rules in writing instead of relying on the general priority rules to work themselves out later (or, worse, in a dispute).
What it actually settles
Who ranks first, who can enforce, and when
- Ranking. Which lender's claim is paid first from the proceeds if the security is enforced, restating and often refining what the general priority rules would otherwise decide (see charge priority explained).
- Enforcement control. Who can actually appoint a receiver or take enforcement action, and whether a subordinated lender has to stand still while the senior lender acts first.
- Payment waterfall. The order in which recovered money is applied: costs, then senior debt, then subordinated debt, and so on.
- Information and consent rights. What each lender is entitled to be told, and what changes to the arrangements need everyone's sign-off versus just the senior lender's.
Where this differs from a deed of priority: that shorter document is often just the ranking clause on its own, common with two straightforward secured lenders. An intercreditor agreement usually covers the fuller set above, and is the document reached for once there are more than two parties, or once enforcement mechanics genuinely need spelling out rather than assumed.
Where this fits
The agreed version of the general priority rules
This sits alongside charge priority explained, which covers how ranking works when nothing has been specifically agreed. An intercreditor agreement is what the lenders sign when they'd rather fix that answer themselves than leave it to the general rules, particularly once a negative pledge or an all-assets debenture is already in place and a second lender still needs a way in.
A new lender can usually see before it asks whether that restriction exists: the particulars filed at Companies House for each charge must state whether its terms prohibit or restrict further security ranking equally with or ahead of it (Companies Act 2006, section 859D).
Decision helper
Alternatives and limitations
Raise it early: it takes time and solicitors
Negotiating one takes real time and, usually, solicitors on both sides, so it's worth raising with a prospective new lender early rather than after terms are otherwise agreed. If the existing lender refuses outright, lender consent refused covers what is still open, and second charge blocked covers the other places a second-ranking charge gets stuck. The facility switch cost estimator puts the consent and priority costs next to the rest of what a new facility costs to set up, so they're in the comparison from the start. See Company Charges Explained for the underlying register entries this all sits on top of.
Is a second lender waiting on this?
If a new facility depends on an existing lender agreeing terms, tell us who holds security now and what the new facility is for.
Adam Parker
Founder of Muswell Rose Consulting Ltd, which trades as Established Finance · former Managing Director of Penny, an invoice finance business, working in mortgages, commercial finance and fintech lending since 2010 (career history).
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Common questions
Questions about this
What is an intercreditor agreement?
A contract between two or more lenders who each hold security over some or all of the same borrower, ranking their claims against each other, setting who can enforce and when, and how payments and recoveries are shared out if things go wrong. It sits alongside the individual loan and security documents rather than replacing them.
Is an intercreditor agreement the same as a deed of priority?
They do the same underlying job, ranking competing security, but a deed of priority is usually the simpler version: a short agreement between two lenders fixing the order their charges rank in. An intercreditor agreement is the fuller document typically used with more than two parties, or where enforcement rights, standstill periods and payment waterfalls need spelling out in more depth, not just the ranking order.
Does a small business ever need an intercreditor agreement?
It comes up more than the size of the document suggests: any time a second lender, whether that's an asset-based lender, an invoice financier, or a business loan provider, is asked to take security behind an existing charge, whoever holds the senior position will usually want the ranking and enforcement rights documented properly rather than left to the general legal priority rules.