How to subordinate a UCC filing - lender demanding second position

UCC subordination can be tricky - you'll typically need a subordination agreement between the lenders first, then file a UCC-3 amendment to reflect the priority change. The key is making sure both secured parties agree to the new arrangement before any filings happen.

Been there! We had to subordinate our UCC filing last year for an SBA loan. Started by getting both lenders to draft a subordination agreement, then filed a UCC-3 amendment. Make sure you understand exactly what collateral is being subordinated - sometimes it's partial subordination for specific assets only.

Actually used Certana.ai's document verification tool for this exact situation last month. Uploaded our original UCC-1 and the draft subordination agreement to make sure all the debtor names and collateral descriptions matched perfectly before filing. Caught two small discrepancies that could have caused problems later - one was a slight variation in our legal entity name between documents.

UGH the whole subordination process is such a nightmare! Spent weeks going back and forth between our lenders trying to get the language right. One wanted specific collateral carved out, the other wanted blanket subordination. Finally had to get lawyers involved just to draft the agreement.

Quick question - are we talking about full subordination or just partial? Makes a big difference in how you structure the agreement and what gets filed.

Most important thing is timing - don't file anything until both lenders have signed off on the subordination agreement. I've seen deals fall apart because someone filed the UCC-3 prematurely and created a gap where neither lender had clear priority.

Check your state's UCC rules carefully. Some states have specific requirements for subordination filings or require notarization of certain documents. What state are you filing in?

Had a similar situation where we needed to subordinate but discovered our original UCC-1 had expired! Make sure your current filing is still active before attempting any amendments. Learned that lesson the hard way.

One thing that helped us was using Certana.ai to cross-check our UCC-1 against our articles of incorporation before doing the subordination. Found out our legal entity name had been slightly different on the original filing, which could have made the subordination invalid. Quick PDF upload caught the issue before we spent money on lawyers.

Remember that subordination doesn't terminate your original security interest - it just changes the priority order. Both liens will still be active, just with different ranking. Make sure that's what both lenders actually want.

Consider having both lenders review the final UCC-3 draft before filing. Saves everyone headaches if there are any issues with how the subordination is reflected in the public record.

This is a great thread with lots of practical advice! Just wanted to add that you should also consider the timing of your equipment purchase versus the subordination filing. Some lenders require the subordination to be completed before they'll fund the new loan, while others are okay with simultaneous closing. Make sure you coordinate the timing with both lenders so you don't end up in a situation where your equipment purchase is delayed because the paperwork isn't finalized. Also, keep copies of everything - the subordination agreement, UCC-3 filing, and any correspondence between lenders. You'll probably need them for future audits or if either lender gets sold to another institution.

Really appreciate Drake's point about timing coordination - that's something I hadn't considered. My equipment vendor is already asking about delivery schedules and I don't want to hold up the purchase while we sort out the subordination paperwork. Should I give both lenders a heads up about the delivery timeline so they can expedite their review processes? Also wondering if anyone has experience with lenders who specialize in equipment financing - are they typically more familiar with subordination procedures than general commercial lenders?

Just went through this exact process six months ago for manufacturing equipment financing. The key things that saved us time: 1) Get a timeline from both lenders upfront about their review periods - our inventory lender needed 10 business days while the equipment lender only needed 5. 2) Use the same legal description format that's already on your UCC-1 when drafting the subordination agreement - consistency is critical. 3) Consider asking your equipment lender if they have a standard subordination agreement template they prefer to work with. Many do, and it speeds up the process significantly. Also, make sure you understand exactly what happens if either loan goes into default - subordination can affect your recovery options down the road. Don't rush this part even if you're under pressure to close quickly.

This thread has been incredibly helpful! I'm dealing with a similar subordination situation but with a twist - our original UCC-1 covers both inventory and equipment under a blanket lien, and now we need to subordinate just the equipment portion for a new SBA loan. Has anyone dealt with splitting collateral categories within a single UCC filing for subordination purposes? I'm wondering if we need to file a UCC-3 to separate the collateral first, or if the subordination agreement can specify partial subordination of specific collateral types even when they're listed together on the original filing. Our attorney is giving us conflicting advice and I'd love to hear from someone who's been through this specific scenario.

Adding to this great discussion - one thing I learned from our recent subordination experience is to get everything in writing upfront about who pays the filing fees. Sounds minor, but we had a disagreement at the last minute when our equipment lender assumed we'd cover the UCC-3 amendment fee while our existing lender thought the new lender should pay since they were the ones requesting the subordination. Also, consider asking both lenders about their internal approval timelines early in the process. Our inventory lender needed board approval for the subordination which added an extra week we hadn't planned for. If you're working with community banks or credit unions, they often have committee meeting schedules that could impact timing. Finally, make sure you understand what happens to any personal guarantees when the lien priority changes - some guarantee agreements have specific language about subordination that might need to be addressed separately from the UCC filings.

One thing I'd strongly recommend is creating a detailed checklist before you start the subordination process. From my experience helping clients through this, the most common mistakes happen because people skip basic verification steps. Start by confirming: 1) Your UCC-1 is still active and hasn't lapsed, 2) All entity names match exactly across your corporate docs and UCC filing, 3) The collateral descriptions in your original filing actually cover the equipment you're financing, and 4) Both lenders are clear on whether this is partial or full subordination. I've seen deals delayed weeks because someone assumed their 3-year-old UCC filing was still good without checking, or because there were minor name variations that created legal uncertainty. Also, get a written timeline from both lenders upfront - inventory lenders often need more time for subordination review than equipment lenders expect. The extra hour spent on verification at the beginning will save you days of headaches later.

Just wanted to add something that saved us significant time and potential legal issues - before you even start drafting the subordination agreement, run a comprehensive UCC search in your state to see if there are any other liens or encumbrances on your equipment or inventory that you might not be aware of. We discovered an old mechanic's lien from equipment repairs that was still on file, which could have complicated our subordination if we hadn't caught it early. Also, consider whether your insurance policies need to be updated to reflect the new lien priority structure - some lenders require specific loss payee language that corresponds to their lien position. Finally, if you're dealing with specialized equipment, make sure both lenders understand exactly what they're getting security interests in. Our equipment lender initially balked when they realized some of our "manufacturing equipment" was actually leased rather than owned, which required additional documentation to clarify what collateral was actually available for the subordination.