What Is a Junior Lien? | Business Lending Glossary
Junior lien explained — lien priority, how junior lienholders are paid in foreclosure, and why lien position affects your borrowing cost.
Definition
A lien on an asset that ranks below a senior lien in priority of repayment in the event of default or liquidation.
Explanation
When multiple creditors hold liens against the same collateral, their claims are satisfied in the order of lien priority during a foreclosure or liquidation. The first-position (senior) lienholder is paid in full before the junior lienholder receives anything. This subordinate position means junior lien holders face significantly higher risk, and accordingly charge higher interest rates.
Example
A property valued at $800,000 has a $600,000 first-position mortgage and a $100,000 second-position (junior) business line of credit secured by the same property; if the property sells for $680,000 in foreclosure, the junior lien holder recovers only $80,000.
Why It Matters
Stacking debt with junior liens materially increases lender risk and therefore cost of capital — borrowers should understand their full lien stack before taking on additional secured debt.
Frequently asked questions
Will a lender make a junior lien loan?
Some alternative lenders and second-position MCA funders will lend in junior position, but at higher rates and often requiring the senior lienholder's consent via an intercreditor agreement.
