---
title: "What Is First Lien?"
term: "First Lien"
description: "First lien is the senior secured claim on a borrower's assets—repaid before subordinated debt and equity in default or sale—common in venture debt and buyout financing."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/first-lien
---

# What Is First Lien?

> First lien is the senior secured claim on a borrower's assets—repaid before subordinated debt and equity in default or sale—common in venture debt and buyout financing.

**First lien** debt holds the highest-priority security interest in a borrower's collateral—cash, receivables, intellectual property, equipment—so holders are paid first in enforcement, bankruptcy, or asset sale ahead of second lien and unsecured creditors.

### How it works

Venture debt lenders typically take a first lien on substantially all assets while warrants provide equity upside. Credit agreements define collateral, reporting covenants, and [event of default](/glossary/event-of-default) remedies including seizure and sale. In recovery, first lien lenders exhaust collateral value before junior claimants receive proceeds—equity often receives nothing in deep distress.

Buyout financing stacks first lien term loans and revolvers with second lien or mezzanine below. Subordination agreements clarify payment order. Founders personally guarantee only in rare early-stage cases; most venture debt is non-recourse to founders beyond fraud.

Adding new debt requires **intercreditor** agreements if multiple liens coexist—second lien lenders accept subordination for higher yield.

### Why it matters

- **Founders:** First lien enables growth capital without immediate dilution but constrains future borrowing and M&A flexibility; default risks loss of control via lender action.
- **Investors:** Equity sits below first lien—heavy debt loads reduce equity upside in moderate exits and amplify wipeout risk in down scenarios.

### Common mistake

Treating venture debt as "free money" because covenants feel loose at signing. First lien bites when revenue misses and lenders block additional financing or force [cash sweep](/glossary/cash-sweep) prepayments.

### Related ideas

See venture debt, [event of default](/glossary/event-of-default), [cash sweep](/glossary/cash-sweep), and second lien.

## FAQ

### What is first lien in simple terms?

If the company cannot pay its debts, first lien lenders get paid from assets first— before other lenders and shareholders. It is the top priority security interest.

### Why does first lien matter?

It makes debt cheaper than unsecured borrowing but increases downside severity in distress. Investors review lien stacks before approving new debt on top of existing facilities.


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Source: https://venturecapitaltracker.com/glossary/first-lien