What Are Ecommerce Interfunding Agreements?

An Interfunding Agreement (IFA) is a contract often used in connection with capital stacking that outlines terms between capital providers, including which provider gets paid first in the event that a business (an ecommerce business, in this case) goes into default. Also known as an “Intercreditor Agreement” or “Subordination Agreement,” an IFA is a necessary step when obtaining funds from more than one capital provider. 

Use this guide to help you understand how IFAs impact your business’ ability to get more working capital. 

How Does An Ecommerce Interfunding Agreement Work?

At its core, an IFA defines which party gets paid first if a business can’t meet its outstanding capital obligations. This is common in ecommerce, where founders often combine a bank facility with alternative funding to support growth.

Without an IFA, most senior capital providers won’t allow another provider into the stack, but with one in place, everyone has clarity on risk, priority, and expectations. Essentially, this structure allows multiple providers to work together without stepping on each other’s toes. 

The IFA should answer three essential questions:

1. Who gets paid first
The agreement establishes payment priority. A senior capital provider typically has first claim, while a junior capital provider agrees to be paid after.

2. What happens in a default scenario
If the business cannot continue making payments, the IFA defines how funds are distributed and what actions each party can take.

3. What claim each party has on assets
It clarifies who has rights to specific assets or revenue streams, and how those rights are shared or subordinated.

Who Usually Drafts the Interfunding Agreement?

In most cases, the senior capital provider leads the process. This is typically a bank or primary capital provider with the largest exposure and strongest claim on the business.

Their legal team will draft the initial agreement, which is then reviewed and negotiated with the junior or subordinated capital provider. This back-and-forth can take some time, especially if terms are complex or if multiple parties are involved.

Founders are often surprised by how long this process can take, but it’s not unusual for negotiations to stretch several weeks, depending on responsiveness and alignment from all parties.

Do Interfunding Agreements Impact Your Ability To Get Additional Funding?

An IFA can either unlock growth or slow it down. If structured well, it enables you to layer additional capital on top of your existing facility. This is critical for ecommerce brands that need to move fast during peak demand seasons.

However, if the agreement is structured poorly or if your senior capital provider is restrictive, it can limit how much additional capital you can access or block new capital providers entirely. This is why understanding your current agreements matters: the terms you agree to early on shape your capital flexibility when you need it.

What Are Key Provisions in an Interfunding Agreement?

While every IFA is different, a few provisions show up consistently and directly affect your ability to operate and scale:

• Priority of payments: Defines the order in which capital providers receive funds
• Standstill periods: Limits when a junior capital provider can take action after a default
• Security interests: Outlines who has claims on assets or revenue
• Consent requirements: Specifies when one capital provider needs approval from another
• Maximum additional capital: Caps how much new funding can be introduced

Why You Should Contact Your Senior Capital Provider Early

If you have a bank loan but need to expand your financial stack, it’s critical that you let your bank know this before starting the funding process with another capital provider. Reaching out to your senior capital provider early in the process does a few important things:

• Tells you whether you can seek additional capital. You may need more funds than your bank is able to approve, which lets you know it’s time to seek additional capital through alternative sources.  
• Alerts you if an IFA needs to be created. It can take up to 60 days for capital providers to negotiate IFA terms so starting early can mean the difference between hitting a growth window or missing it.
• Improves your funding experience. When all parties know an IFA is coming, the process is smoother and more predictable.

6 Questions to Ask Your Senior Capital Provider

Even if you are not actively raising capital, it is worth having clarity on your position so you can make the best long-term capital decisions. For example, if your bank won’t let a subordinated capital provider into the stack, you can plan accordingly to keep your cash flow from drying out.

Here’s what to ask your senior capital provider about their interfunding agreement process:

1. Can you meet my financing needs at the fee and terms I want?
2. If not, am I permitted to take additional capital from other providers?
3. Are you secured against any of my business assets? If so, what type?
4. What is your process for negotiating and completing an IFA with another capital provider?
5. What amount of capital am I allowed to take from another capital provider?
6. What requirements must be met to approve another provider in the stack?

How Clearco Makes Interfunding Agreements Easier

Clearco has funded more than 10,000 businesses and deployed over $3B in capital. We have seen every version of this process, from smooth to painfully slow. So, our approach is simple: make IFAs easier for founders. 

Unlike other capital providers, we don’t charge any fees for underwriting or IFA creation. Our team works directly with your existing capital providers to move the process forward without unnecessary friction. Additionally, our expert strategic advisors are here to guide you throughout this process so you never have to guess what happens next.

For founders managing multiple capital relationships, IFAs are part of the reality. The difference is whether they slow you down or set you up to scale faster.

FAQs

1. What is an Interfunding Agreement (IFA)?
An IFA is a contract that outlines how multiple capital providers share risk, including who gets paid first and how claims are handled.

2. Why do ecommerce businesses need an IFA?
Most senior capital providers require an IFA before allowing additional capital providers into the stack.

3. Who controls the IFA process?
The senior capital provider typically leads drafting and negotiations since they have the primary claim on the business.

4. How long does it take to complete an IFA?
It can take up to 60 days or more depending on complexity and alignment between parties.

5. Can an IFA limit my ability to raise more capital?
Yes, certain terms can cap how much additional capital you can take or restrict new providers from entering your stack.