LOAN STACKING PROBLEM
All companies must have capital to grow. Often small businesses do not have access to the working capital when they need it. So, with the time-honored tradition of loaning money—business owners can borrow the money they need, and then pay it all back along with a fee or interest over time.
Unfortunately, as many entrepreneurs or small-business owners know, obtaining working capital isn’t as easy as it seems. The reasons range from poor credit, insufficient collateral, weak business performance, too little time in business, etc. Many lenders simply won’t lend to small businesses. And without traditional lenders, the financing amounts may not be adequate to meet the needs of small-business owners, or worse, stay in business.
To overcome this challenge, some merchants are tempted to accept multiple short-term loans or unsecured financing from different companies at the same time. This is called stacking, and it’s a bad idea. Here’s why.
Why Loan Stacking is Bad Idea?
Loan Stacking is the act of accepting multiple loans or financing simultaneously. The borrower ends up making payments to several lenders. This is primarily prevalent in the credit card/merchant cash advance/short-term loan term loan industry. The big problems come when you find yourself accepting working capital because you’re struggling to make payments on other loans or working capital.
We’re not talking about just one or two loans either. If you’re really determined and/or hook up with the wrong company, it’s completely possible to stack five or six loans on top of each other. Reputable finance companies generally don’t like it because the more loans you take out, the more likely your business is to default.
Solution for Loan Stacking
No matter how attractive it might be, don’t stack. If you’re having trouble making the repayments, borrowing more money is not the answer. You need to try renegotiating your debt, consolidating to free up cash flow, or refinancing with a larger loan and better terms. Credit card, merchant cash advance, and short-term loan money are designed to meet an immediate cash flow need. Only use them for long-term benefits such as increasing sales, expanding your business, or purchasing equipment to improve operating efficiency.
Need to renegotiate, consolidate, or refinance? Schedule a no cost or obligation consultation below.