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Small Business Loan Stacking — Friend or Foe?

This is from
cash loan – Yahoo News Search Results:

In the Small Business Lending industry, there has been quite a bit of conversation regarding the unscrupulous practices used by lenders and brokers alike. Some articles have taken an extreme approach in order to sensationalize the industry and attract market attention. One of the topics that is included in almost every broker/lender discussion or forum is that of stacking. Interestingly enough, most business owners have never even heard of the term and are unaware of the conversation that is happening.

So, What is Stacking?

Stacking means to secure an additional unsecured loan or cash advance on top of the loan or advance that a business owner already has in place. For example, if you have an unsecured loan with a lender where you’re making daily/weekly/monthly payments, and you get another loan from another lender in addition to the loan that you already have, you’re stacking. Now here’s the big question everyone’s asking, should stacking be allowed? And if so, under what circumstances? There’s a lot of debate surrounding the issue, so let’s take a look.

First off, other industries are okay with stacking as a practice, and in fact, they embrace it.

How many of us have credit cards in our wallet from American Express, Visa, and Mastercard? When you get a personal credit card, it is highly likely that other credit cards will notice that credit card on your credit profile and begin targeting you. If you decide to get another credit card on top of your first one, you’re going to be stacking your credit cards. In the credit card industry, it’s a widely accepted practice.

Stacking in the World of Small Business Loans

In the world of business loans, stacking is a whole other matter. Businesses usually have a lot of risk involved, and lenders do a lot of research and diligence before they lend to a business. When a business owner stacks a loan on top of one she already has, she will increase her financial burden without consulting the original lender and the lender doesn’t know about the additional risk.

Let’s say you’re a lender who found a small business with $200,000 dollars in annual revenue. You do the work and give them an unsecured loan for $25,000. A couple weeks later, you find out that they layered in a new cash advance for an additional $10,000 dollars. Suddenly, your risk went way up without an increase in reward (interest income). Now, where the real problem occurs is when this scenario happens 1-3 more times, where suddenly that small business has five unsecured loans or contracts, which of course they can’t possibly pay off, so they go under. This not only hurts the business owner, but it hurts the original lender.

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Small Business Loan Stacking — Friend or Foe?

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