You already have a business loan, possibly from a bank or an online lender, and now you’re thinking about getting additional capital. Taking out another loan behind your existing lender, also known as stacking, has become a widespread practice that plagues small businesses across the nation. It’s a strategy that has led to the downfall of tens, if not hundreds, of thousands of SMBs.
Unfortunately, this scourge has only worsened in the last 10-15 years with the proliferation of online small business lenders. While some businesses manage to muddle through, and a rare few even thrive after stacking, these are the exceptions that prove the rule.
Let’s review the top reasons why stacking funding is usually a bad idea, and explore the rare circumstances where it might actually make sense.
1) You’re Probably Violating Your Contract with Your Existing Lender
If you take a moment to review the fine print of your existing lending or funding agreement, you’ll likely find a clause that prohibits taking out additional financing behind your current lender. At the very least, it probably states that you need their consent before pursuing any new loans. Ignoring this can put you in breach of contract, which is the quickest way to damage your relationship with your current lender.
• The Reality: Be a person whose word means something. Violating your agreement is not just about the legal risks—it’s about trust. Once broken, that trust is hard to rebuild.
2) You Should Ask Your Existing Lender for Additional Funding First
If you really need more capital, your existing lender is often your best option. They already know your payment history, and if you’re in good standing, they’re more likely to offer better terms and pricing. Lenders appreciate loyalty and established relationships, so if you’re going to take on more debt, why not go to the source that trusts you?
• The Reality: Securing additional funding from a lender you’ve already worked with will almost always result in more favorable terms than going to an unfamiliar lender.
3) If Your Existing Lender Says No, You Need to Take That Seriously
If your current lender denies your request for more funding, that’s a huge red flag. Think about it—lenders want to lend money. That’s their entire business model. If they’re not willing to extend more credit to you, it’s because they don’t believe they’ll get paid back. And they have more insight into your financial health than you might think.
• The Reality: Take the hint. Lenders would love to put more money out on the street if they were confident they’d get paid back.
4) You’re Either Delusional or Ignorant—Funding Won’t Fix a Business Problem
At this point, you’re either aware that you have a business problem, or you’re completely oblivious to it. Stacking more debt on top of existing loans won’t solve your issues. If your business isn’t generating enough revenue to cover its expenses, more funding is just a Band-Aid, not a cure.
• The Reality: Throwing more money at a problem doesn’t fix it. If your business model or operations are broken, no amount of funding will save you from the inevitable.
5) You Misfinanced Your Business to Begin With
Let’s be real—maybe you mismanaged your financing in the first place. You took out a line of credit or maxed out your credit cards to cover operating expenses during a slowdown, promising yourself you’d pay it off once your revenue bounced back. But now, instead of fixing the problem, you’re thinking of kicking the can down the road with another loan.
• The Reality: You’re just delaying the inevitable. Instead of compounding your mistakes with more debt, it’s time to confront the underlying financial issues in your business.
6) You’re Going to Enter a Tailspin of Increasing Debts and Higher Costs
The more funding you stack, the more debt you accumulate, and the higher your repayment costs become. This leads to a vicious cycle where you’re constantly borrowing just to stay afloat. Each new loan comes with higher costs and shorter terms, putting you on a path toward an uncontrollable debt spiral.
• The Reality: Eventually, the debt will outpace your revenue, leading to defaults, repossessions, and potentially the collapse of your business.
The 1 Reason Why Stacking Funding MIGHT Be OK
Look, I’m not naive, and I know many of you won’t listen to reason and are going to plow ahead anyway. And truthfully, your existing lender is unlikely to pursue legal action if you stack them. So, let me give you the one reason why stacking funding MIGHT be OK.
If your business has a clear, immediate opportunity for strategic growth—something like a large purchase order from a reliable customer, or the chance to open a new location with high revenue potential—stacking could work. The key here is that the ROI (Return on Investment) from the additional capital has to significantly outweigh the costs.
If you can be 100% sure that the extra funding will generate enough profit to cover the cost of the loans and leave your business in a stronger financial position, it might be worth the risk. But even then, this is a rare case and requires thorough planning and understanding of the financial risks involved.
• The Reality: Stacking funding might make sense when you know with near certainty that it will generate growth and profits that will far exceed the cost of borrowing. But let’s be clear—this is the exception, not the rule.
Try Getting This Advice From Your Broker…
Try and get this advice from your average commercial loan broker. In theory, the broker you’d want to work with should be giving you this same sober, clear-headed guidance. But the reality? It’s spectacularly and perversely the opposite.
The highest commissions in the commercial loan brokering space come from stacked loans, turning an already expensive and risky form of funding into something even more dangerous for small businesses. Brokers love stacking loans because they get paid more—a lot more—with each deal they pile on. And guess what? If brokers couldn’t make their commissions from stacked loans, nearly the entire commercial loan broker industry would collapse.
• The Reality: The very brokers who should be advising against stacking are the ones pushing it the hardest. Their incentive structure depends on it, leaving you stuck with higher costs and more debt.
Conclusion: Don’t Gamble Your Business on Stacked Debt
Stacking funding almost always leads to more harm than good. It drains your cash flow, racks up high costs, and puts your business at greater risk of default. While there are rare cases where it could make sense, these situations require careful planning and a clear path to return on investment.
At BrokerFreeCapital, we’re here to guide you toward sustainable funding solutions that align with your long-term business goals, not short-term debt traps.