Understanding Business Loan Stacking

As your small business grows, there will come a time when you need additional capital. Whether it’s for expansion, seizing new opportunities, or product development, existing cash flows may not suffice to take your business to the next level.

Getting approval for your first Business Loan Stacking can feel like a significant achievement. However, what if you’re offered another loan shortly after taking out the first one? Or perhaps you’ve already spent the funds from the initial loan but need more cash?

Short-Term Business Loan Stacking and Merchant Cash Advance Stacking

Businesses increasingly turn to a practice known as loan stacking. This involves obtaining multiple loans on top of existing ones. Typically, these additional loans are short-term business loans or merchant cash advances (MCAs) provided by alternative lenders. Instead of replacing existing loans, stacking adds new ones, increasing the overall debt burden.

The Process of Loan Stacking

1. Initial Loan: A Business Loan Stacking applies for and secures funding from a lender.
2. Seeking Additional Funding: The business then seeks additional funding from other lenders, effectively stacking multiple loans. While this provides access to a larger capital pool, it can create a complex web of financial obligations.

Reasons for Loan Stacking

Businesses resort to loan stacking for several reasons:

• Immediate Capital: Stacking provides quick access to capital for operational expenses, inventory purchases, or growth investments.
• Eligibility and Approval: Traditional loan options may have strict eligibility criteria or lengthy approval times, prompting Business Loan Stacking to explore faster alternatives.
• Supplementing Existing Resources: Some businesses already have loans from traditional outlets and turn to stacking to supplement their financial resources, as traditional lenders typically don’t stack.

Types of Loans Involved

Any type of loan can theoretically be stacked. Alternative lenders often play a key role in adding positions. Commonly stacked loans include business cash advances based on future receivables, obtained from alternative lenders, fintech companies, or specialized providers.

Subordinate (Second Position) Loans

Alternative lenders often take a subordinate position when lending to small businesses. In this scenario:

• The second-place lender has a claim on your assets if you default.
• Traditional lenders rarely accept second place, but alternative lenders do.
• If a loan is in second place, the lender receives what remains after the first lien holder liquidates assets.

Remember that while loan stacking can provide immediate funds, it also carries risks. Exploring alternative financing options and understanding the legal aspects is crucial for informed decision-making. Real-life case studies can shed light on the pros and cons of this strategy.