Standby Agreement
What does it mean
A Stand-By Agreement is a mutual agreement between a bank and another creditor. It stipulates that the other creditor will refrain from accepting payments on its loan if the bank fails to make its loan payments.
Why does it matter
A Stand-By Agreement can be highly beneficial when a Seller Carryback is involved. In such an agreement, another creditor commits to not accepting payments on their loan if the obligated payments are not being made. This additional provision offers the bank an extra layer of cash flow protection. In case of a decrease in cash flow, the Stand-By Agreement acts as a pressure release valve, allowing the bank to access additional cash flow to navigate through challenging periods more easily.
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