Glossary

What is first-position vs second-position financing?

First-position financing means a lender or funder has the senior, highest-priority claim on a borrower's assets or future receivables — they are first in line to collect in default or insolvency. Second-position funders have a subordinate claim, paid only after the first-position funder is made whole. In MCA, position is established through UCC filings and subordination agreements.

How position is determined

Priority between secured creditors is generally established by the order of UCC-1 filing (first to file, first in priority), though subordination agreements can alter the default order by contract. A funder who files a UCC-1 first against a merchant's assets holds first-lien position; a later-filing funder is in second or third position.

In practice, many second-position MCA funders require a subordination agreement from any first-position funder — a written acknowledgment that the first-position funder agrees to the second funder's position. Without that agreement, a second funder's claim can be effectively blocked by the first funder's priority interest.

Risk differences between positions

First-position funders have the lowest recovery risk in default scenarios — they are paid first from any available assets or receivables. Second-position funders take materially higher risk: if the merchant's available assets are insufficient to satisfy the first funder, the second funder may recover nothing. This risk differential is typically reflected in pricing — second-position advances carry higher factor rates.

FAQ

First-Position vs Second-Position Financing — common questions

Can an MCA funder hold both first and second position on the same merchant?

Yes — a funder who provides a second advance to an existing merchant can hold both positions, or can require consolidation of the prior advance into the new one. How positions are structured is a contractual and operational decision the funder makes deal by deal.

How does a funder verify they are in first position?

By conducting a UCC search before funding to confirm that no prior funder has filed a blanket lien, or by obtaining a signed subordination from any existing first-position funder. Relying solely on the merchant's representation is not sufficient due diligence.

UCC filing Loan stacking Merchant cash advance (MCA)

The institution around the intelligence

See Hadrian run your case lifecycle — intake to close, every decision audited.

Governance-native case processing for lenders and regulated teams.

Book a live demo