Revenue-Based Financing Part 5: Stackers/2nd Position+ Revenue-Based Funders

“Kid, you think I started this life 10 minutes ago? Guy hands you a light envelope, it’s just the beginning.”

— Richie Aprile, The Sopranos

In this installment, we’re diving into a topic that has become a financial minefield for many small businesses—stackers, also known as 2nd-position+ revenue-based funders. Stackers operate in a high-risk, high-cost niche, offering loans to businesses already carrying debt. Unlike first-position lenders, these funders are often structured as merchant cash advances (MCAs) to dodge lending regulations like usury laws. By structuring their deals as “purchases of future receivables,” they skirt caps on interest rates and get away with charging far more than first-position lenders.

Their rates are much, much higher than first-position loans, and their repayment schedules are relentless. While they may seem like a quick fix for urgent capital needs, we can’t stress enough that we only recommend stacking funding as a last resort—and in very limited situations. (For a deeper dive, check out our post, “5 Reasons Why Stacking is Bad and 1 Reason Why It Might Be OK.”)

Let’s take a look at why businesses might consider stackers, the pros and cons, and a sample deal that shows just how costly stacking can be.

Why Businesses Consider Stackers

For many small business owners, stacking may feel like the only option. Maybe cash flow is tight, a big expense came out of nowhere, or there’s an expansion opportunity that requires immediate funds. But let’s be real—stacking is a band-aid, not a solution.

In many cases, businesses turn to stackers because they’re trying to avoid making the tough calls. Cutting back expenses, reducing payroll, or renegotiating with suppliers may not be easy, but these are the kinds of steps that provide real financial stability. By taking on more high-cost debt, businesses risk falling into a debt spiral that only gets harder to escape.

If you’re considering stacking, it’s worth asking yourself if you’re using it to avoid the tough decisions that could actually right-size your business. Stacking doesn’t fix the problem; it just delays it, and often, it makes it worse.

The Pros and Cons of Stacked Funding

The Pros (If We Can Call Them That)

Quick Cash, Low Questions Asked: You’ll get the money fast—stackers don’t ask a lot of questions, and paperwork is light. But remember, “fast” comes with strings attached.

The Cons (More Like Red Flags)

High Cost of Capital, Disguised as ‘Convenience’: Stacker funding is designed to be expensive. By avoiding lending regulations through MCA structures, they pile on rates that could make a payday lender blush.
Nonstop Payments: With daily or weekly deductions straight from your revenue, stacker loans can bleed you dry. You’re giving up a piece of every dollar coming in, often on short repayment terms. Good luck keeping up.
Opaque Fee Structures: Add brokers to the mix, and you’re probably paying extra without even knowing it. And don’t expect transparency; most stackers count on you not asking too many questions.

Sample 2nd Position+ Deal

Let’s say you already have a first-position loan with these terms:

Loan Amount: $100,000
Rate Factor: 1.20
Term: 12 months
Payment Frequency: Weekly

With these terms, your weekly payment on the first-position loan would be:

Total Repayment: $120,000
Weekly Payment: $120,000 / 52 weeks = $2,307.69

Now let’s imagine you’re considering a 2nd-position (stacker) loan on top of this. Here’s how a typical 2nd-position deal might look:

Loan Amount: $50,000
Rate Factor: 1.40 (higher than the first position due to increased risk)
Term: 6 months
Payment Frequency: Daily

With these terms, your daily payment on the 2nd-position loan would be:

Total Repayment: $50,000 x 1.40 = $70,000
Daily Payment: $70,000 / 130 business days ≈ $538.46

Total Cost of Both Loans:

First Position Weekly Payment: $2,307.69
Second Position Daily Payment: $538.46

Now, you’re paying $2,307.69 per week + $538.46 per day, making for a tough financial juggling act. The 2nd-position deal may be fast, but with steep costs and constant withdrawals, it’s a serious commitment. If cash flow slips, keeping up with both loans can quickly become a challenge.

The eye-watering fees and costs don’t stop there with most stackers either. Likely, you are going to pay an origination fee on top of a “Personal Service Fee” to your broker.

Stackers Barely Even Underwrite

In a very real sense, stackers barely underwrite at all. The fact that you already have a loan from a reputable first-position lender gives them just enough confidence to throw you some cash—at a sky-high rate, of course. They’re charging such high rates over such short terms that they can absorb astronomically high default rates and still make money. Make no mistake: default rates on 2nd-position loans are through the roof, and these lenders know it.

Here’s another sick irony: many of these 2nd-position lenders don’t even have an inside sales team. They outsource all sales and marketing to brokers. So, what does it say about their own belief in the “value” of their product if they won’t even sell it themselves? They’re effectively letting brokers push these high-cost, high-risk loans for them, knowing full well the likelihood of success is stacked against the borrower.

Legal and Contractual Considerations

Stacking funding isn’t just risky for your cash flow—it can also put you in a tricky legal situation. Most first-position lenders include specific clauses in their contracts that prohibit borrowers from taking on additional financing without their consent. These clauses are designed to protect the first-position lender’s stake by preventing you from over-leveraging and compromising your ability to repay.

Ignoring these clauses and taking on a second-position loan is a technical breach of contract, and while many first-position lenders may not rush to take legal action, they would be within their rights to do so. The added risk here is that if you default, the first lender has solid legal grounds to move to collection, potentially even accelerating the repayment of your remaining balance, creating a fast snowball effect.

When (and Why) Stacking Might Work (But Don’t Hold Your Breath)

Look, let’s be honest—stacking is a terrible idea 99% of the time. But if you’re still dead set on going down this road, here are the rare, maybe, sort of acceptable scenarios:

Cash Flow Crunch with Guaranteed Cash Incoming
Got a short-term cash flow gap and guaranteed revenue on the way? Maybe you’re just waiting on a major client’s payment, or you know your holiday sales spike is just around the corner. In cases like this, a 2nd-position loan might tide you over—just don’t pretend this is a permanent fix.

Immediate, High-Return Opportunity (We’re Talking Sure Thing)
Here’s the fantasy: You’ve got a golden opportunity that needs cash now—a hot piece of equipment, seasonal inventory, or a new location that’s going to pay off in spades. If this sounds like you, stacking could help fund that short-term need. Just remember, if it doesn’t pay off, you’ll be back to Square One with a double debt load.

The “Not Really a Stack” Exception
Here’s a technical scenario where taking on more funding might make sense—and we wouldn’t even call it a true stack. Let’s say you run a business where a large chunk of your revenue flows through Stripe. Maybe you’ve already secured some working capital from Stripe Capital, who offered a loan based solely on your Stripe payment streams. But let’s add a wrinkle: you also have considerable revenue coming in from B2B invoicing or through other payment processors.

Since that initial Stripe Capital loan is likely only based on Stripe revenue, any additional funding secured from a first-position revenue-based lender that looks at all your revenue sources wouldn’t really be considered a stack in the traditional sense. In fact, the added funding could be a logical way to fill in gaps left by a funding product focused on a single revenue stream.

If you’re in a similar situation and need more capital, consider looking to reputable first-position lenders who evaluate the totality of your business’s cash flow. Whether it’s a loan or a line of credit, this additional funding would be better structured to support all revenue sources—without entering the risky world of true stackers.

Bottom Line
Stacking works for lenders way more than it works for you. They’re cashing in on your desperation with barely any underwriting and sky-high rates. So, if you’re going to do it, do it with caution, eyes wide open, and a very clear sense of how you’re getting out.

Conclusion: Time to Confront Reality

If you’re considering stacking, it’s time to confront reality head-on. Your business doesn’t need more high-cost debt—it needs hard decisions. Tough calls on expense cuts, operational changes, or strategic pivots will do far more to secure your business’s future than layering on a costly, high-risk second-position loan.

Now, if you truly have a unicorn opportunity, exhaust every resource first—especially by talking to your existing lender. Staying in bounds on your contract keeps you on solid footing and will get you far better terms than any stacker will offer. Remember, your first-position lender would love to lend you more money if they believed it was in everyone’s best interest. If they’re saying no, take it seriously—it’s a sign that more debt isn’t the solution.

Stacking may look like a quick fix, but don’t mistake it for a real solution. The best path forward is to take control of your business’s finances, make the tough calls, and work within the terms you already have. In the end, your business will be far better off.