Sub Loan Agreement Template for the United States

A Sub Loan Agreement is a critical financing document that allows you to obtain additional funding that ranks below existing senior debt obligations. This specialized contract is governed by federal laws including the Truth in Lending Act (TILA) and Equal Credit Opportunity Act (ECOA), along with state-specific lending regulations that vary across jurisdictions.

When do you need this document?

You need a Sub Loan Agreement when seeking mezzanine financing for business expansion, acquisition funding that complements existing senior debt, or project finance requiring multiple funding sources. This document is particularly valuable in real estate development projects where construction loans are supplemented by subordinated funding, or in leveraged buyouts where additional capital is required beyond senior bank financing. Companies often use subordinated loans to bridge funding gaps while maintaining existing credit facilities with senior lenders.

Key legal considerations

The subordination provisions are the most critical aspect of this agreement, as they establish the payment hierarchy between senior and subordinated debt. You must carefully structure interest rate terms to comply with state usury laws, which vary significantly across the United States and can affect maximum allowable rates. Cross-default clauses require particular attention, as defaults under senior debt typically trigger subordinated loan defaults. The agreement must include detailed payment waterfall mechanisms that ensure senior lenders receive priority in all payment scenarios. Guarantor provisions need careful structuring to avoid conflicts with existing senior debt guarantees, and security interests must be properly subordinated to senior lenders' collateral positions.

Legal requirements in United States

Federal compliance begins with Truth in Lending Act (TILA) disclosure requirements, mandating clear presentation of interest rates, payment terms, and total financing costs. The Equal Credit Opportunity Act (ECOA) prohibits discrimination in lending decisions and requires proper documentation of credit decisions. Fair Credit Reporting Act (FCRA) compliance is necessary when obtaining or using borrower credit information during underwriting. Dodd-Frank Act provisions may apply depending on the lender type and loan structure, particularly regarding consumer protection measures. The Bank Secrecy Act (BSA) requires anti-money laundering compliance and customer identification procedures. State usury laws impose maximum interest rate limits that vary by jurisdiction and loan type, making state-specific legal review essential. Some states require specific licensing for certain types of subordinated lending activities, and recording requirements for secured subordinated loans vary by state property law.