Running a business in today’s economy isn’t easy. Cash flow is unpredictable, and when you need to cover a quiet season or grab a growth opportunity, funding can be a lifeline. But if one loan doesn’t feel like enough, you might be tempted to take on another. And another. This is called loan stacking, and while it may seem like a quick solution, it often creates more problems than it solves.
What Is Loan Stacking?
Loan stacking happens when your business takes out multiple loans from different lenders in a short period. Maybe one loan didn’t quite cover what you needed. Maybe another lender offered you more. Either way, you’re left juggling several repayment schedules, each with its own fees, rates and terms.
At first, it can feel like you’re solving your cash flow challenge. But more often than not, you’re building a tower that’s destined to topple.
Brent Downard, Head of Credit at Merchant Capital, explains it best:
“Loan stacking might seem like a quick fix, but it often results in overwhelming repayment obligations, higher interest rates, and ultimately, strained cash flow.”
He shares the story of a Merchant Capital client who accepted additional capital offers from unscrupulous lenders.
“Ultimately, 50% of this client’s revenue was being used to repay loans. Even though their mark-up on goods was 100%, they were essentially using 100% of their gross profit just to service their debt. It was just not sustainable.”
Why Businesses Fall Into the Trap
Loan stacking usually starts with good intentions. You want to keep your doors open, stock up for a busy season, or hire extra hands. But without the right financial partner, stacking debt can leave you with:
- Unmanageable repayments that eat into your cash flow
- Higher interest rates and hidden fees from each new lender
- A damaged credit score, especially if you miss a payment
- Less money for reinvestment, meaning fewer growth opportunities
It’s like trying to fix a leaky bucket by pouring more water into it and wondering why it never fills up.
Why Responsible Lending Matters
At Merchant Capital, we believe in responsible, sustainable funding. We provide working capital that’s tailored to your needs, with repayments linked to your revenue. That way, your funding grows with your business, and you’re never left drowning in debt.
We’re also a founding member of the South African SME Finance Association (SASFA), a best-practice body that promotes ethical lending in the SME sector. As part of our commitment, we don’t approve funding if you already have existing loans elsewhere because stacking short-term debt isn’t a long-term solution.
SASFA members are held to strict standards, ensuring that you receive clear terms, transparent costs, and support that puts your business first.
5 Questions to Ask Before You Take Out a Loan
Before applying for funding, ask yourself:
- Would it be better to wait or save for this business goal?
- Do I fully understand the total cost and repayment terms?
- Can my business manage the repayments without strain?
- Will this loan help me generate more profit than it costs?
- Is this lender a SASFA-accredited and responsible partner?
If you're already in a loan cycle but thinking of switching to a better lender, it’s important to settle your existing debt first. Transferring without closing out existing loans just adds pressure to your cash flow.
The Bottom Line
Stack your benefits, not your loans. Partner with a lender that supports your long-term success, not just a short-term cash injection.
If you’re ready to explore business funding that works with your cash flow and supports your growth, get in touch with Merchant Capital. Let’s find a solution that’s built for your business.
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