legal
Junior Lien
A junior lien is a security interest that ranks behind an existing senior lien on the same collateral, also called a second-position or subordinate lien.
Definition
What it means.
When multiple creditors hold UCC filings or mortgages against the same business assets, the creditor that filed first holds the senior (first-position) lien. Every creditor that files after holds a junior (subordinate) lien. In a default and liquidation scenario, the senior lienholder is paid in full before junior lienholders receive anything.
Junior liens are riskier for lenders, which is why second-position funding typically carries a higher rate or smaller advance than first-position financing on the same collateral. A subordination agreement can rearrange lien priority when a new lender needs the senior position.
Example
A business has an existing $200K term loan with a blanket UCC filing. A new lender advancing $75K takes a junior (second) position behind the first lender, its lien is satisfied only after the $200K is repaid.
Now what?
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