Second Position
A second-position MCA is a cash advance funded to a merchant who already has a first-position MCA outstanding — junior to the first creditor's claim on receivables — requiring higher pricing and stricter underwriting to compensate for elevated default risk.
Why This Matters
Second-position deals exist in a gray zone of the MCA market. Some funders specialize in second positions, knowingly taking junior priority for higher returns. Other funders prohibit second positions entirely. The risk profile differs materially: default rates run 2-4x first positions, factor rates run 10-25% higher to compensate, terms shorten to 4-8 months versus 6-12 for first position. From a prospecting standpoint, merchants with active first positions are the highest-converting second-position lead pool, but underwriting must scrutinize stacking risk and combined holdback burden carefully.
Example
Merchant has $40K first-position outstanding (4 months in, 60% paid down). Applies for second position: $30K at 1.42 factor, 5-month term, 12% holdback. Combined daily payments approximately $400 (first) + $300 (second) = $700 against $50K monthly revenue. Sustainable but tight; underwriting flags for portfolio risk monitoring.
Frequently Asked Questions
Frequently Asked Questions
How do I price a second-position MCA?
Industry typical: 1.30-1.50 factor rate (vs 1.20-1.40 for first), 4-8 month terms (vs 6-12 first), and stricter qualification (minimum revenue often 1.5x first-position floor). Combined holdback across both positions should not exceed 35-40% of receivables to maintain merchant viability.
Is second-position the same as stacking?
No. Second-position is disclosed and consented — both first and second-position funders know about each other and pricing reflects the dual exposure. Stacking is undisclosed — additional funders are unaware of existing positions, violating contracts and creating fraud exposure.