Since the financial crisis, it’s harder than ever to convince banks and traditional lenders to buy into your big idea, so it’s not surprising that more and more business owners and entrepreneurs are turning to alternative options. When you’re just starting out or trying to grow your small business, it’s tempting to take advantage of any available influx of capital, but not all small business loans are created equal, and when you start to take out multiple loans at the same time, that’s when your problems really begin…
What is Loan Stacking?
When a borrower takes out more than one loan simultaneously, this is known as “loan stacking”, and it’s as precarious as it sounds for you and your business. While multiple, short-term business loans might give you a temporary sense of financial freedom and possibility, it’s easy to forget that those lenders are all going to come calling at some point.
Ultimately, loan stacking means tying the fortunes of your business to multiple lenders–and that suddenly doesn’t sound quite so tempting, does it?
What are the Risks?
Keeping track of multiple debts and payment deadlines, and managing several different creditors, can become a full-time job in itself, and adds a whole new level of stress to the running of your business–something that you definitely don’t need! Many quick-fix online loans require weekly or even daily repayments, with interest that spirals at a frightening rate, and most businesses just can’t sustain this level of debt.
Loan stacking puts pressure on your cash flow from every angle, stretching your resources to breaking point, and therefore begins to actually restrict what you can do and how you can grow (which is the opposite of what you intended when you took out the loans). You might even find yourself taking out new loans in order to repay the existing ones, which is never a healthy cycle.
With more than one creditor at your door, there’s a higher risk that you will default on at least one loan, and this would seriously damage your credit rating for the future. Many lenders even include anti-stacking policies in their loan agreements to protect themselves against having to compete for your resources and assets; they are well aware of how risky this practice is and how unstable your business could become, and they want to be sure that they’ll be able to get their money back. Taking out multiple loans simultaneously could therefore invalidate your initial loan agreement, sending you into automatic default and even risking legal proceedings.
So What Are Your Options?
Loan stacking is most risky when used for emergency cash flow, and when the loans are all similar products. Any loan you take out should have a distinct function and an obvious return: what are you using it for and how is it going to benefit your business?
At Rapid Finance, we offer a suite of different products and financing options for everything from equipment and property to debt consolidation, so even if you do take out more than one loan, they each have a clear role to play in your business strategy. They don’t compete with each other because they don’t cover the same functions and rely on the same assets. From bridge and asset-based loans to a merchant cash advance, you can select the product and repayment terms that support the way you do business.
Many online lenders pride themselves on being quick and easy, without tons of credit checks, restrictions and hoops to jump through, and of course this is appealing–especially if you need funds fast. But this does make it easier to stack up multiple debts that soon become crippling for your business, and some lenders will even intentionally exploit this. At Rapid Finance, we guarantee an easy application process and fast approval so that your business doesn’t suffer while you wait for much-needed funds, but we make sure to understand your situation and offer the products that are most appropriate to you.
Don’t put your business at risk for a quick fix! At Rapid Finance, we believe in supporting your business to grow and thrive in the future by helping you to make smart financial decisions today. Call us now to find out what we can do for you.