The short answer
Because of security position. Most business lenders take a general security agreement over your business, and when two lenders both hold one, the lender who registered first gets paid first if the business fails. A lender looking at a file that already carries another lender's security knows it would be standing behind them in the queue. Some price for that, and some simply decline.
What a general security agreement is
A general security agreement, usually shortened to GSA, is a charge a lender takes over everything the business owns now and acquires later: stock, receivables, equipment, cash at bank, vehicles, intellectual property, the lot. It is registered on the Personal Property Securities Register (PPSR), a national public register, and it is the standard security behind unsecured business loans, overdrafts and lines of credit. "Unsecured" in those product names means no mortgage over property. It does not mean no GSA.
A GSA does not mean the lender owns your equipment or can take your stock on a whim. It means that if the business defaults, the lender has a legal right to recover what it is owed from the business's assets ahead of anyone who holds no security at all.
Why the first lender gets paid first
When more than one lender holds a GSA over the same business, the general rule is that priority follows the order of registration on the PPSR. The lender who came on the file first is first in line. The lender who came after is second, and so on. There are exceptions, the main one being finance secured over the specific asset it paid for, such as an equipment loan, which can rank ahead of an earlier GSA for that one asset. For the cashflow lenders this guide is about, registration order is what counts.
In the worst case, where the business fails and its assets are sold, the first-registered lender recoups its money first. The lender who came after only gets what is left, which in a failed small business is often very little. So a second lender can hold a GSA on paper while being close to unsecured in practice, and it prices, or declines, accordingly.
Why a particular name on the file can be a hard no
Lenders know each other. Some hold GSAs that are broad and enforced quickly, and some are known to refuse any request to share or rank behind. When one of those names shows up on the file, several lenders decline automatically, because they know they would be last in line and that the lender ahead of them will not move. It is not a judgement on your business. It is a judgement on where they would sit.
What that means when you want a second facility
- Some lenders decline on sight. Their policy is first position only, or no file that already has a specific competitor registered on it.
- Some lend, but price for the position. Second-position money is dearer because the recovery outlook is worse. That is the rate gap our stacking guide describes.
- Some will lend if the first lender signs a deed of priority. That is a document in which the first lender agrees to rank behind, or share, on some or all of the assets. Some first lenders will sign one, many will not, and asking takes time.
- Sometimes the cleanest answer is to pay the first lender out. Refinance them, have their registration released, and the next lender comes on in first position at a first-position price.
How we handle it
Before we approach anyone, we check which lenders are already on your file and in what order they came on. That tells us which lenders on our panel will consider the file at all, which will want a deed of priority, and whether a refinance would leave you better placed than a stack. Then the lenders go on in the order that works, which is the whole point of structuring a second facility properly rather than applying everywhere and collecting declines. Every decline is also a credit enquiry on your file, so it pays to know the answer before you ask.
This is general information about how security usually works. The terms of your own agreements decide your position.