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When it comes to securing financing for your business, there are often various legal documents and agreements that you need to prepare. One such agreement is known as a UCC Subordination Agreement. This agreement is designed to help lenders ensure that they get paid in the event that a borrower defaults on their loan.
But what exactly is a UCC Subordination Agreement, and what should you include in your template? Let’s take a closer look.
What is a UCC Subordination Agreement?
A UCC Subordination Agreement is a legal document that establishes the priority of liens on a borrower`s assets. In other words, it outlines how different creditors will be paid in the event that the borrower defaults on their loan.
The term “UCC” refers to the Uniform Commercial Code, which is a set of laws that govern commercial transactions in the United States. Each state has its own version of the UCC, but they are all generally similar.
Why is a UCC Subordination Agreement important?
For lenders, a UCC Subordination Agreement is important because it helps them ensure that they get paid if the borrower defaults on their loan. By establishing the priority of liens on the borrower`s assets, the lender can be confident that they will receive their portion of the proceeds from the sale of those assets.
For borrowers, a UCC Subordination Agreement can be beneficial because it can make it easier for them to secure financing. By agreeing to subordinate their liens to those of other lenders, they may be more likely to get approved for a loan.
What should you include in your UCC Subordination Agreement template?
If you are preparing a UCC Subordination Agreement, there are several key provisions that you should include. These include:
1. Identification of the parties involved: Be sure to include the names and addresses of all parties involved, including the borrower, lender, and any other lienholders.
2. Description of the collateral: List the assets that are being pledged as collateral for the loan, including any existing liens.
3. Identification of the senior lender: This is the lender whose lien will have priority over all other liens.
4. Description of the subordination: This section should explain how the other liens (including the borrower`s) will be subordinated to the senior lender`s lien.
5. Acknowledgment of the priority: All parties should acknowledge that the senior lender`s lien has priority over all other liens.
6. Release of claims: The borrower should agree to release any claims it may have against the senior lender and other lienholders.
7. Signature and notarization: The agreement should be signed by all parties and notarized.
In summary, a UCC Subordination Agreement is an important legal document that can help lenders ensure that they get paid in the event that a borrower defaults on their loan. By including the key provisions outlined above in your template, you can create a clear and enforceable agreement that benefits all parties involved.