Second Lien
Private Credit glossary · Loan Structures & Instruments
Definition
Security interest junior to first lien on the same collateral.
Second Lien in plain English
When a company borrows money, lenders often want the right to grab something valuable (the "collateral") if the company can't pay them back. A "second lien" means you're second in line to grab that same asset — someone else (the "first lien" lender) gets paid in full first, and you only get whatever is left over. Think of two people who both loaned a friend money against his car: if the car is sold, the first lender takes his share off the top, and the second lender hopes there's enough left for them. Because being second is riskier, second-lien lenders charge a higher interest rate to make up for it.
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