A first-position lien (or first lien) is a creditor's primary legal claim on a borrower's collateral — it has priority over all other liens in the event of default or liquidation. The first-lien holder is paid first from any recovery proceeds, making first-position loans lower-risk and typically lower-cost than subordinate financing.
Lien position determines who gets paid first when collateral is sold to satisfy debts. A first-position lienholder is senior to all other creditors with claims on that collateral. If the business defaults and assets are liquidated, the first-lien holder is made whole (up to the collateral's value) before second-lien holders, junior creditors, or equity owners receive anything. In small business lending, most traditional bank loans and SBA loans require first-position on collateral. A UCC-1 financing statement (https://www.uniformlaws.org/committees/community-home?CommunityKey=d66ea7b9-d4e4-4a03-bd3e-e8f4e3941d52) filed with the state establishes a secured party's lien on personal property. The filing order generally determines lien priority — the first lender to file wins first position. MCAs often take first position via a blanket UCC-1 lien on all business assets. When a business has an existing first-position lienholder and seeks additional financing, the new lender may take a [[second-lien]] position, which carries higher risk and is typically priced higher. [[Subordination-agreement]]s can restructure priority between existing lenders. Lenders performing UCC searches (via [[ucc-search]]) check lien position before committing to fund.
In a default, lien position determines recovery order. First-position holders are repaid before any other secured creditor; if collateral value doesn't cover all debt, junior lienholders may receive nothing. First-position lenders take less risk, which is why they can offer better terms than second-position lenders.
Yes, though it requires the first-position holder's awareness or explicit subordination agreement. Having multiple liens (known as stacking in the MCA world) increases your overall debt load and is closely scrutinized by any new lender reviewing your UCC filings.