What is Loan Stacking?
Learn what loan stacking is, understand the serious risks of multiple overlapping loans, and know how to avoid unsustainable debt situations.
Loan stacking occurs when a business takes out multiple loans or advances in a short period, often before previous debts are repaid. While having multiple loans is not inherently problematic, stacking — especially with high-cost products like MCAs — can quickly create an unsustainable debt burden.
How Loan Stacking Happens
The typical loan stacking pattern:
- Initial borrowing: Business takes out a loan or MCA for working capital
- Cash flow pressure: Payments strain cash flow, creating need for more funds
- Second loan: Business takes another loan or MCA to cover the gap
- Escalating cycle: Combined payments increase pressure, leading to more borrowing
- Debt spiral: Eventually, the business cannot sustain the combined payment load
MCA Stacking Risk
Merchant cash advances are particularly dangerous to stack because of daily/weekly payment requirements and high factor rates. Multiple MCAs can consume 30-50% or more of daily revenue.
Warning Signs of Problematic Stacking
Watch for these indicators that debt is becoming unsustainable:
- Taking new debt primarily to make payments on existing debt
- Combined debt payments exceeding 15-20% of monthly revenue
- Multiple daily or weekly payment obligations
- Declining cash reserves despite ongoing revenue
- Increasing difficulty meeting payroll or vendor payments
Why Lenders Check for Stacking
When you apply for financing, lenders review your debt schedule to identify stacking. They are concerned about:
- Whether you can actually afford additional payments
- Whether the new loan will just be used to pay other debts
- The risk that you may default on all obligations
- UCC filing positions that indicate multiple lien holders
Avoiding Loan Stacking
To prevent dangerous debt accumulation:
- Calculate total debt service before taking any new loan
- Avoid high-cost products (MCAs, daily payment loans) when possible
- Use a single, appropriately-sized loan rather than multiple small ones
- Consider refinancing or consolidation if you have multiple high-cost debts
- Work with a financial advisor before taking on additional debt
Getting Out of Stacked Debt
If you are already in a stacking situation:
- Debt consolidation: Refinance multiple loans into a single, lower-cost loan
- Negotiation: Some MCA companies will negotiate settlements or restructured terms
- Revenue focus: Prioritize increasing revenue to improve debt-to-income ratios
- Professional help: Consider working with a business debt advisor
If you are considering a second or third loan to cover payments on existing debt, stop and reassess. This is a warning sign that you need restructuring, not more debt.
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Read more →Refinancing: Replacing Existing Business Debt
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Read more →Important Disclosure
Not Financial Advice: The information provided in this article is for general informational purposes only and does not constitute financial, legal, or professional advice. You should consult with qualified professionals before making any financial decisions.
No Guarantee of Financing: Liminal Lending Co. is a business loan marketplace that connects borrowers with third-party lenders. We are not a lender and do not make credit decisions. Submitting an application does not guarantee approval or funding. Loan terms, rates, and availability vary by lender and are subject to borrower qualifications and lender criteria.
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Rate Information: Rates, terms, and fees mentioned in this article are estimates based on publicly available information and may not reflect current market conditions or specific lender offers. Actual rates depend on creditworthiness, business financials, and lender policies.
Information May Change: Financial markets, lending regulations, and economic conditions are subject to rapid change. While we strive to keep our content accurate and up-to-date, information in this article may become outdated. Always verify current rates, terms, program availability, and regulatory requirements with lenders and official sources before making financial decisions.