Togetherness concept. People hands throwing coins in piggy bank , white background. concept: loan stacking
Yvette Salas
By: ysalas
Read in 8 minutes

Loan Stacking: Why Avoid It?

We know there’s an abundance of EASY MONEY being offered to small business owners. You probably have been called several times by brokers trying to “sell you a loan” you can cash immediately.

We advise against taking out multiple business loans within the first 6 months of closing your loan with Camino Financial.

In this article, we will explain to you why.

What is loan stacking?

In the simplest of terms, it means to take multiple loans simultaneously, thus “stacking” them. 

In other words, loan stacking happens when you take out multiple unsecured loans or cash advances to address cash shortfalls.

money going up and down, debts. concept: loan stacking

Loan stacking vs. loan refinancing

Don’t confuse loan stacking with loan refinancing.

Loan refinancing is when you get a first loan (that usually has not-so-favorable terms), so you get a second loan (with better terms) to pay the first one. This practice does not affect you nor your finances; instead, it can benefit you.

Loan stacking is when you get several loans to spend them all on different things. With this practice, you keep stacking debt, and your monthly payments become more than you can handle.

The Risks of Loan Stacking

At a glance, loan stacking doesn’t sound that bad, right? I mean, you are getting more money. But in reality, it is a very dangerous practice.

We understand that it takes “money to make money,” but the reason we advise you against loan stacking is that we don’t want you to overstrain your business or household with debt payments. When we approved you for a loan, we approved the max monthly loan payments you can make with minimal risk of default. We calculated this amount by reviewing your monthly “global cash flows.”

What are global cash flows?
Global cash flows are the amount of your net business cash flows plus other household income, less fixed personal obligations (e.g. housing rent, car payments, and personal debt payments).

In other words: we reviewed your business cash flows and gave you a loan with monthly payments specifically designed so that you can pay them without affecting your finances: we won’t charge you monthly more than your cash flow can take; it’s like a balancing act. But if you take a second loan, the balance will be off: the payments will be more than what your cash flow can handle, and you won’t be able to pay any loan.

And not paying your loans will affect your future too. It can hurt your credit score, which will affect your ability to get loans with good terms.

Getting other loans once you have been funded with a commercial loan will make it harder for you to meet your monthly payments and can put your business at risk.

Increasing your monthly debt payments without consulting Camino Financial can be very dangerous and can result in putting your business at risk of default.

Couple managing the debt. concept: loan stacking

What can you do to maximize your cash flow without loan stacking?

But you still need more money to improve your cash flow. So, are there any alternatives to loan stacking?

Yes! Here are some non-debt alternatives you should consider to address cash flow issues in your business:

  • Start forecasting your cash flows for 12 months. Making a forecast is an amazing tool that can help you start planning for the future and keep your business on the way to success: that way, you take actions to strengthen your business and improve your profits. Learn how to predict your cash flows without being an accountant.
  • Take a close look at your financials to see if you can change your prices or costs. This seems like a simple action, but it can take you to the next level. By fine-tuning your prices and costs, you can reduce your expenses and improve your profits.

Don’t know where to start? Watch this short WEBINAR to get started.

  • Contact your major suppliers to see if you can negotiate better terms. See if you can get bulk discounts with your suppliers or find new suppliers with more competitive pricing.
  • Pay all your bills on time to avoid late fees. This is a very simple yet effective practice. You can avoid paying late fees (and save that money) by making a calendar that can help you plan your bill payments.
  • Re-negotiate terms with your customers (sometimes you just have to ask for the payment sooner). It’s complicated to ask customers to make their payments sooner, but most often than not, they won’t mind renegotiating the payment terms if you let them know in advance.

loan stacking

Frequently Asked Questions

What if I didn’t get approved for the loan amount I requested?

We approved you for a lower amount because your global cash flows were less than the monthly payments resulting if we had approved your requested loan amount. The loan amount we approved ensures that your global cash flows exceed your monthly payments.

Maybe you didn’t get all the capital you needed, but rest assured that this way, your business will continue to grow and won’t have any financial problems.

How can I get more money to invest in my small business?

At Camino Financial, we want to see you grow and thrive. That’s why we created our graduation program: after you make 8 timely payments, you can get more capital, more time to pay, and fewer interest rates.

That way, you won’t need to stack any loans and have the capital you need to invest in your business.

So, keep making timely loan payments and have patience. Soon you will be ready to graduate to a better loan!

What if I have an opportunity to take on a contract that will increase my revenues?

Give us a call: (213) 634-3019.

As your financial partner, we want to help you think about the impact the contract will have on your operations, people, and cash flows. We care about you and want to see you succeed.

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