An SBA EIDL subordination agreement is a legal document that allows an existing lender to secure the first position on loan repayment from a borrower who has taken out a Small Business Administration Economic Injury Disaster Loan, or EIDL, during a time of need. When a borrower takes out an EIDL, the SBA becomes the primary lender, meaning that any other creditors will have to take a secondary position in repayment.
However, there are times when a borrower needs additional financing while the EIDL balance is still outstanding. To obtain additional financing, they may need to secure a loan from another lender, such as a bank or a private lender. In this case, the SBA requires the borrower to sign an SBA EIDL subordination agreement, which allows the secondary lender to have first priority in repayment if there is a default.
The subordination agreement is designed to protect the interests of all parties involved, primarily the SBA and the secondary lender. The lender providing the additional financing is more willing to provide the loan knowing that they will have priority in repayment in case of default. On the other hand, the SBA can still be assured that they will be repaid, as the secondary lender has agreed to take on a secondary position and is taking on a higher risk.
To obtain an SBA EIDL subordination agreement, the borrower must make a formal request to the SBA to obtain permission to take on the additional financing. The borrower must also provide a copy of the secondary loan agreement and all related documentation, including a detailed repayment plan. Once the SBA reviews the request, it will grant permission for the subordination, and the borrower and the secondary lender can proceed with the loan agreement.
In conclusion, an SBA EIDL subordination agreement is a legal document that allows a borrower to obtain additional financing while still maintaining their EIDL loan. The agreement protects the interests of all parties, ensuring that all lenders have a clear understanding of their priority in repayment. If you are in need of additional financing but have an outstanding EIDL loan, consider an SBA EIDL subordination agreement to help secure the financing you need.
