Stacking Business Loans: The Pros and Cons

Stacking Business Loans: The Pros and Cons

Growing a small business can be a challenging venture, especially when it comes to securing the necessary financing to keep the business liquid. Stacking business loans can provide entrepreneurs with an alternative funding solution, but it’s important to understand the pros and cons of this strategy before making any decisions.

Pros of Stacking Business Loans

Multiple Funding Sources: By stacking business loans, entrepreneurs can tap into multiple funding sources to secure the capital they need to start or grow their business. This can be especially beneficial if traditional financing options are not available.

Increased Buying Power: Stacking business loans can provide entrepreneurs with increased buying power, allowing them to purchase larger equipment or inventory. This can help to grow their business and increase profits.

Flexibility: Stacking business loans can be structured in a way that meets the unique needs of the business. This allows entrepreneurs to choose the loan products that are best suited to their specific funding needs.

Cons of Stacking Business Loans

Increased Debt: Stacking business loans can quickly increase the amount of debt a business carries, making it more difficult to manage and potentially putting the business at risk.

Higher Interest Rates: When stacking business loans, entrepreneurs are likely to face higher interest rates and other fees associated with multiple financing sources. This can make it more difficult to repay the loans and negatively impact the business’s bottom line.

Complex Loan Structures: Stacking business loans can be complex, and the terms and conditions of each loan may vary. Entrepreneurs must be careful to understand the details of each loan and how they may impact the business’s overall financial health.

Influence refinance opportunities and building relationships with financiers. In South Africa most short-term lenders do not accept stacking business loans. They want to be the only financier to reduce business risk and will thus only refinance your loan if they can settle the other lender’s loan and still give you a pay out to make it viable for your business. Unfortunately, most businesses do not meet this criterion and they find themselves tied into expensive loans that they can’t get out of due to loan stacking.

In conclusion, stacking business loans can give you access to additional capital, but it can also affect your future funding endeavours. It’s important to weigh the pros and cons carefully and seek the advice of a financial professional before making any decisions. By considering all the factors involved, entrepreneurs can make informed decisions and secure the financing they need to succeed.

Before considering loan stacking, please get in touch with us at Premier Finance to discuss your options. You can contact us on 021 780 1046 or email judy@premierfinance.co.za

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