Lien Position: Priority of Claims on Business Assets
Understand what lien position means, why it matters, and how lien priority affects your ability to obtain financing.
What Is Lien Position?
Lien position refers to a lender's priority claim on collateral relative to other creditors. When multiple lenders have liens on the same asset, their position determines who gets paid first if the asset is liquidated. First position (senior) liens have priority over second position (junior) liens.
Understanding lien positions is critical when you have existing loans and seek additional financing.
How Lien Position Works
Example: Equipment worth $100,000
- First lien: Bank A is owed $60,000
- Second lien: Bank B is owed $50,000
- If equipment sells for $100,000:
- Bank A receives full $60,000
- Bank B receives remaining $40,000
- Bank B loses $10,000
Why Lien Position Matters
Lien position affects financing in several ways.
| Impact | First Position | Second Position |
|---|---|---|
| Interest Rate | Lower | Higher |
| Approval Chances | Better | More difficult |
| Loan Amount | Higher LTV | Limited by first lien |
| Recovery Risk | Lower | Higher |
Managing Lien Positions
When seeking new financing with existing liens:
- Know what liens exist on your assets
- Understand which assets secure which loans
- Request subordination agreements when needed
- Consider refinancing to consolidate liens
- Use different collateral for new loans when possible
Lien positions are established by filing date. The first lender to properly file their UCC financing statement or mortgage has first position on that collateral.
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Read more →Important Disclosure
Not Financial Advice: The information provided in this article is for general informational purposes only and does not constitute financial, legal, or professional advice. You should consult with qualified professionals before making any financial decisions.
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