What is an SBA Subordination Agreement?
Can EIDL Loans be Subordinated to a Factoring Company?
Table of contents
- What is an SBA Subordination Agreement?
- Can an SBA Loan be Subordinated?
- Will the IRS Subordinate a Tax Lien to Bankers Factoring?
- EIDL, SBA, or Tax Issues Need a Subordination Agreement in Place
- What is Subordination in Factor Financing?
- How is Subordination Used in Invoice Factoring?
- Use a Subordination Agreement
- Why would a lienholder subordinate its position?
- Bankers Factoring Tax Lien Subordination Solution
- Ready for the owner-employees of Bankers Factoring to fund your entrepreneurial dreams even with an SBA loan in place? Call 866-598-4295 or go to Bankers-Factoring-Application.
Can an SBA Loan be Subordinated?
Will the IRS Subordinate a Tax Lien to Bankers Factoring?
There are many Small Business Administration or SBA loan programs. They include 504, 7a, EIDL, and disaster recovery. The majority of these Small Business Administration guaranteed loan products come to you in a lump sum. What if you need additional working capital? That is where invoice factoring and a Small Business Administration subordination agreement comes into play.
You took a COVID-19 Economic Injury Disaster Loan (EIDL) loan from the Small Business Administration or SBA, and it helped, but you need more working capital. But how can you get more funding? The government has an EIDL SBA loan subordination program so that Bankers Factoring can give you money against your accounts receivable or open invoices. W have helped many EIDL borrowers receive additional working capital.
Back when you start your business, you took a Small Business Administration loan, but you still need more working capital. Will your Small Business Administration lender work with Bankers Factoring (Bankers) to get you critical working capital even if all your assets secure your SBA loan?
Your business is in a financially distressed situation. You face cash flow issues, you are behind on taxes, and the IRS might place a tax lien on your business assets. It is time for your business to secure financing. What can you do? You have limited options for payroll funding, PO financing, or covering overhead.
EIDL, SBA, or Tax Issues Need a Subordination Agreement in Place
All three scenarios, EIDL, SBA, or Tax Issues, require the secured party to subordinate their position in your A/R to Bankers Factoring. We have 50+ years of working with government entities on subordination agreements.
This is common for small businesses, entrepreneurs, and startups in financially stressful scenarios. Whether the IRS or a traditional financing lender has a lien on your business assets as collateral, Bankers Factoring can remove the burden of your funding obstacles. We can help SBA and EIDL borrowers.
Continue reading about how EIDL or SBA subordination can reduce the stresses of your funding nightmares and how to get the SBA’s approval on a subordination agreement. Bankers Factoring has all the paperwork ready for the subordination process.
What is Subordination in Factor Financing?
A subordination in finance is an agreement ranking collateralized debts for purposes of repayment from a debtor in the event of foreclosure or bankruptcy. The Small Business Administration has been open to subordinate their position in 504, 7a, and EIDL loans. In invoice factoring financing, this agreement provides priority claims to the factor on the accounts receivable. The other assets listed in your small business loan as still your SBA lenders in first position.
How is Subordination Used in Invoice Factoring?
Setting up a factoring account is a straightforward process done quickly. Once signed, the factoring agreements by Bankers Factoring will file a UCC lien to secure its position against the accounts receivable. Right after the account debtor (our client customer) sends the notice of assignment, you can get your account funded.
To learn more, visit our previous article, “Bankers Factoring Tax Lien Solutions.”
Commercial loans are typically secured by filing a lien against the business entity’s assets.
In a subordination situation, our clients see funding delays when an existing UCC lien is against their receivables as collateral. When this happens, Bankers Factoring cannot claim the first rights against the receivables since another party is already in position. However, we can work in the first position to claim that spot.
Learn more here about “Why Companies Ask for Tax Documents.”
Issue #1: Is there another lender involved?
You can easily secure commercial loans by using a UCC filing a lien against the business entity’s assets. Lien assets often include language like “all accounts,” “account receivables,” and “all assets.” Working with legal representation to understand what assets are when becoming collateral is essential.
You can also use the accounts receivable of a business to buy it. Read our article on Buying a Business Using A/R Financing.
Having a pre-existing lien is why you cannot use a line of credit and factoring at the same time – both finance companies need to be in the first position. Also, SBA loans only value your A/R at 10%. An SBA loan subordination can be easier to get than they appear. Not sure where to start on your Small Business Administration subordination? We can help and have all the forms ready togo.
Issue #2: IRS or Tax Lien
The IRS and state and local tax authorities can place a tax lien against the assets of a business if the company fails to pay taxes. The lien puts the tax authority in the first position for claims. Imposing tax liens helps authorities collect back taxes owed.
Use a Subordination Agreement
Suppose a lien against your business assets impacts your factoring agreement. In that case, you can handle this by closing your financing line or paying your back taxes. If your business requires financing to fund operations, this may not be a feasible solution. Either your business operations stall, you pay the taxes or vice versa. Bankers will take control and get the executed subordination agreement with the SBA in place.
For example, suppose your business has a line of financing with the business assets as collateral. Your solution is to get a subordination from the lien holder. A subordination secured an inter-creditor agreement which gives Bankers Factoring the first claims against the receivables. This is only when the financing company or tax authority takes the lower claiming position.
Why would a lienholder subordinate its position?
The process of receiving lien subordination from another lender is challenging. In short, it demonstrates to the first-position lender how the subordination will make other assets or collateral more secure. This argument is based on the premise that the factoring company will grow by becoming the first position holder.
On the other hand, getting a lien subordination from taxing authorities is easier. The argument, however, is the same. You show them how using factoring improves your cash flow, which, in turn, allows you to pay them. This argument makes sense if you have cash flow problems and if those problems prevent you from growing. Taxing authorities often insist on implementing a payment plan that you must follow. As part of that payment plan, they may ask that the factor remit a portion of your monies directly to them.
Bankers Factoring Tax Lien Subordination Solution
Bankers Factoring seasoned team of employee-owners provides hands-on experience with IRS tax liens and tax lien subordination agreements. We have walked clients through complex legal claims, tax liabilities, and cash advances, with taxation authorities filing a lien.
Bankers Factoring helps small businesses in financially distressed situations get the funding your business needs. Even if your loan is denied, we remove the burden of complicated financing lenders and tax agencies with liens in place. An EIDL subordination agreement with Bankers Factoring and your existing lender is a fast and efficient way to improve your cash flow situation, even with an EIDL loan in place. We have the paperwork ready to assist with a subordination request.