The Dangers Of Stacking Small Business Loans

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At the risk of stating the obvious, companies need capital to grow. Often businesses, especially of the smaller variety, do not have access to the capital that they need, when they need it. Thus the time-honored tradition of lending money—business owners can borrow the money they need, and then pay it all back along with a nice fee to make it worth the lender’s time and money.

Unfortunately, as any entrepreneur or small business owner knows, getting capital isn’t as easy as it sounds. For a number of reasons (ranging from no business history to no collateral) many lenders simply won’t lend to small businesses. And with lenders who will, the fees tend to be expensive and the borrowing amounts quite small.

To get around the issues involved with actually obtaining a loan, some merchants are tempted to accept multiple loans from different lenders at the same time. This is called stacking, folks. And it’s a bad idea. Here’s why.

What is Stacking?

Stacking is the act of accepting multiple loans or advances at the same time. As a result, the borrower winds up making payments to multiple lenders. This problem is primarily prevalent in the merchant cash advance/short term loan industry.

I want to be clear here: there are a few very good reasons a merchant might have multiple loans at once. For example, you might get a loan to expand to a second location, and then discover you need more capital to actually advertise for and promote the new location. In this situation, accepting two different advances is not the best way to resolve your problem, but it’s unlikely to destroy your growing business.

The real problem arises when you find yourself in situations like these:

  • You accept additional capital just because it’s offered
  • You accept capital because you’re struggling to make payments on other loans

We’re not talking about just one or two loans either. If you’re really determined and/or hook up with the wrong people, it’s completely possible to stack five or six loans and advances on top of each other.

Stacking is a problem for multiple different reasons. Lenders generally don’t like it because the more loans you take out, the more risky your business is. And extra risk is not what they signed up for.

More importantly, stacking is a bad idea for you because the more loans you have out, the more of your revenue is going toward repaying these lenders. Merchant cash advances and short term loans are already an extremely expensive form of financing. Doubling or tripling what you already have to pay is, to put it mildly, not a good idea. The more loans you’ve accepted, the more precarious your financial health.

Within the industry, stacking used to be something of an unofficial no-no. If a merchant went to another lender with unresolved debt, part of the merchant’s new loan would be used to repay the previous lender. If the merchant simply had too much unpaid debt, they’d be turned away. Unfortunately, this is no longer the rule. Some lenders now make a whole business out of stacking on top of other lenders.

Whether or not stacking itself is acceptable is a huge debate in the industry, but I’m not going to go into all that because it doesn’t really matter. Here’s what you do need to know: many cash advance providers are devising ways to protect against the problem, largely by charging the merchant very large fees if they stack.

While stacking is not entirely the fault of the merchant (I blame faulty education and poor use of lending models) you, the merchant, are obviously an integral part in allowing stacking to happen. If you find yourself in need of additional capital, here are some alternative options to investigate.

Alternatives to Stacking

Refinance or Consolidate: We no longer live in a time when the only options for financing are a bank loan or a merchant cash advance. There are scores of online lenders that can refinance your merchant cash advance(s) with better rates and fees. For example:

  • Dealstruck is a term lender that is sympathetic to the plight of business owners with merchant cash advances. If you’ve been in business for at least a year and have a credit score of 600 or above, Dealstruck is a good option.
  • Accion is a nonprofit microlender that specializes in helping startups and less-established businesses. In most states, Accion has no requirements for time in business, but does require a credit score of 575 or above.

Get a Line of Credit: Many business owners try to use merchant cash advances as if they were a line of credit. Why do that when you could have the real thing? Lines of credit work like credit cards: when you need a bit of extra cash (to make payroll, for example) take it out of your line. You only have to pay interest on the money that you need, and the capital is always there when, and if, you need it.

Marketplace lenders that offer lines of credit include, in no particular order, Lending Club, Dealstruck, StreetSharesBlueVine and OnDeck. Or take a look at our full list of reviews here.

The Bottom Line

I’ve said it before, and I’ll say it again: while there are exceptions, merchant cash advance and short term loan providers don’t always educate you on the lending process. They don’t particularly want you to understand the pitfalls involved. So it’s really up to you to determine how much capital you need and if you can keep up with the daily repayments. Do your homework, in other words!

More vitally, no matter how tempting it might be, don’t stack. If you’re having trouble making the repayments, borrowing more money is not the answer. Likewise, if you need more capital, try refinancing your debt with a larger loan. Merchant cash advance and short term loan money is already expensive. Don’t make it harder on yourself.

Need capital? Check out our reviews of the best online lenders here, and merchant cash advance providers here.

Bianca Crouse

Bianca Crouse

Bianca is a writer from the Pacific Northwest. As a product of the digital age, she likes absorbing large amounts of information and figures she might as well pass it on. When not staring at a screen, she is probably foraging for food outside, playing board games, or harassing somebody with theories about that movie she just watched.
Bianca Crouse
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1 Comment


    It should be commonly known, but it always helps to reiterate that taking out multiple loans to pay back other loans is just a bad idea. If things don’t work out well (which is incredibly possible), you’ll find that you’ve dug yourself into a much deeper hole than you were in to begin with and now owe even more people money that you do not have. Not only that, but the lenders you’ve been working with will not be happy at all about the additional risk you’ve accumulated.

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