Can You Have Multiple Business Loans at Once?
Understanding how to manage multiple business loans, when stacking makes sense, risks of over-leveraging, and how lenders view existing debt.
Yes, you can have multiple business loans at the same time. Many businesses do. But having the ability to stack loans does not mean you should. Understanding when multiple loans make sense and when they become dangerous is critical.
Here is how to think about managing multiple business obligations.
When Multiple Loans Make Sense
Legitimate reasons to have multiple loans:
- Different purposes: Term loan for equipment, line of credit for working capital
- Staged growth: New loan for expansion while paying off existing debt
- Optimizing costs: Low-rate SBA loan plus faster LOC for flexibility
- Seasonal needs: Inventory financing in addition to core term loan
- Real estate plus equipment: SBA 504 for building, separate equipment financing
When Multiple Loans Become Dangerous
Warning signs you are over-leveraged:
- Cash flow strain: More than 15-20% of revenue going to debt payments
- Borrowing to pay debt: Using new loans to make payments on old ones
- MCA stacking: Multiple MCAs with daily/weekly payments
- Declining margins: Debt service eating into profitability
- Covenant stress: Struggling to meet existing loan requirements
The Debt Spiral
Taking new loans to service old debt is a red flag. This creates a spiral that becomes increasingly difficult to escape. Seek help before it escalates.
How Lenders View Existing Debt
When you apply for additional financing, lenders analyze:
- Total debt obligation: All current monthly payments
- Debt service coverage ratio (DSCR): Cash flow vs. debt payments
- Remaining capacity: Can you afford another payment?
- UCC filings: What assets are already pledged?
- Type of existing debt: SBA loan vs. MCA means different things
DSCR calculation with multiple loans:
| Metric | Amount | Notes |
|---|---|---|
| Monthly net operating income | $25,000 | After operating expenses |
| Existing loan #1 payment | $4,000 | Term loan |
| Existing loan #2 payment | $2,500 | Equipment financing |
| Proposed new loan payment | $3,500 | Line of credit |
| Total debt service | $10,000 | Sum of all payments |
| DSCR | 2.5x | $25K / $10K |
Common Multi-Loan Structures
Typical combinations that work well:
| Combination | Purpose | Why It Works |
|---|---|---|
| SBA 7(a) + LOC | Core financing + flexible working capital | Different uses, different terms |
| Term loan + equipment loan | Working capital + asset acquisition | Equipment secures its own loan |
| SBA 504 + SBA 7(a) | Real estate + equipment/working capital | Different programs, different uses |
| Term loan + AR financing | Base capital + invoice acceleration | AR secures itself |
MCA Stacking: A Special Warning
Multiple merchant cash advances are particularly dangerous:
- Daily withdrawals compound: Multiple daily payments drain cash flow
- Factor rates stack: 1.3 factor x 1.3 factor = massive effective cost
- Short terms overlap: Constantly refinancing to survive
- Lenders enable it: Some MCA providers specifically target stacked borrowers
Example of stacking danger:
| Scenario | MCA #1 | MCA #2 | Combined |
|---|---|---|---|
| Advance amount | $50,000 | $40,000 | $90,000 |
| Payback amount | $65,000 | $54,000 | $119,000 |
| Daily payment | $430 | $360 | $790 |
| Monthly impact | $9,460 | $7,920 | $17,380 |
| Revenue needed | $63K/month | $53K/month | $116K/month |
Escape the Stack
If you are in an MCA stack, focus on escaping it. A term loan or SBA loan to consolidate and pay off MCAs is usually the best path out.
Managing Multiple Loans Successfully
If you have multiple loans, manage them proactively:
- Track all obligations: Maintain a debt schedule (loan, balance, rate, payment, maturity)
- Cash flow forecasting: Project payments against expected revenue
- Build reserves: Maintain cushion for payment obligations
- Prioritize payoff: Focus extra payments on highest-cost debt
- Monitor covenants: Stay aware of requirements from each lender
- Review regularly: Quarterly review of your debt position
Debt Schedule Template
Maintain a schedule like this:
| Lender | Type | Original Amount | Current Balance | Rate/Factor | Monthly Payment | Maturity |
|---|---|---|---|---|---|---|
| First National | Term Loan | $200,000 | $142,000 | 9.5% | $4,200 | Mar 2028 |
| SBA via Community Bank | SBA 7(a) | $350,000 | $298,000 | 7.75% | $4,100 | Jun 2033 |
| Wells Fargo | Line of Credit | $75,000 | $45,000 drawn | Prime + 2% | Interest only | Revolving |
| Caterpillar Financial | Equipment | $85,000 | $52,000 | 6.9% | $1,800 | Oct 2027 |
Lender Restrictions on Additional Debt
Existing loan agreements may limit additional borrowing:
- Negative covenants: Provisions prohibiting additional debt without approval
- Maximum leverage ratios: Total debt cannot exceed certain multiples
- Subordination requirements: New debt must be junior to existing debt
- Notification requirements: Must inform existing lender of new borrowing
Always review your existing loan agreements before applying for additional financing. Violating covenants can trigger default.
Ask Your Lender
If you need additional financing, contact your existing lender first. They may offer a new loan or increase your line of credit. They also need to approve if your agreement restricts additional debt.
Signs You Have Too Much Debt
Watch for these warning signs:
- Unable to make payroll without borrowing: Cash flow dependent on new debt
- Paying minimums only: Cannot afford extra principal payments
- Declining to take profitable opportunities: Cannot fund growth
- Constantly watching cash balance: Living transaction to transaction
- Personal funds subsidizing business: Covering shortfalls personally
- Sleepless nights: Stress about making payments
What to Do If Over-Leveraged
If you recognize you have too much debt:
- Stop borrowing: Do not add more debt
- Analyze your position: Create complete debt schedule
- Prioritize payments: Focus on most expensive debt
- Explore consolidation: Can you refinance into better terms?
- Cut expenses: Reduce overhead to improve cash flow
- Increase revenue focus: Prioritize profitable activities
- Communicate with lenders: Proactive communication beats default
- Seek professional help: Consider working with debt advisor or attorney
Healthy Debt Levels
General guidelines for sustainable debt:
- DSCR above 1.25x: Comfortable cushion for variations
- Debt payments under 20% of revenue: Leaves room for operations
- Positive working capital: Current assets exceed current liabilities
- Three months cash reserve: Can cover payments during slow periods
- Profitable operations: Not borrowing to cover losses
Debt is a Tool
Business debt is not inherently bad. Properly used, it fuels growth and generates returns exceeding its cost. The key is maintaining control and not over-extending.
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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.
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