“You keep using that word. I do not think it means what you think it means.”
— Inigo Montoya, The Princess Bride (1987)
There’s a tough pill that many small business owners need to swallow: you don’t have a funding problem—you have a business problem. Taking on more debt might feel like the quick fix, but in reality, it’s just kicking the can down the road, delaying the hard work your business really needs.
Brokers aren’t going to tell you this, though. Why? Because they don’t get paid on deals that don’t fund. They make money off commissions when you sign on the dotted line, so their entire game is to push loans, whether it’s the right move for your business or not. And let’s be real—more debt is almost never the solution to a business problem.
Brokers Know, But They Don’t Care
Brokers have a one-track mind: close the deal. Whether you’re already drowning in debt or in over your head with repayments, they’ll still push for you to take out more. It’s not because it’s good for you—it’s because that’s the only way they get paid. They won’t recognize that piling on more debt is a recipe for disaster because their incentives are completely misaligned with your long-term success.
It doesn’t matter to them that taking out junior debt on top of an existing loan could breach your contract with your senior lender (often a bank), putting your business in even worse legal and financial jeopardy. Most small business owners don’t even realize this, but they’re often contractually bound not to take out additional junior debt if they already have a senior lender. Yet, brokers will conveniently ignore this, knowing full well it could sink you even further.
The Online Lending Trap
If you’ve already taken a loan from an online lender, here’s the truth: that lender is incentivized to give you as much capital as you can realistically pay back, even if that amount stretches you thin. Why? Because online lenders are rational, revenue-maximizing actors. They know the loans they offer are expensive—sometimes painfully so—but their business model revolves around squeezing out every dollar of repayment from you.
Many lenders are perfectly willing to provide more capital to businesses that can handle the payments, even if it’s at the edge of what you can afford. That’s their game. So if your existing online lender isn’t willing to extend you more capital and you feel compelled to find a junior provider, think long and hard about what that means.
If you had to sell on credit to an extremely credit worthy customer (e.g. Walmart) you would gladly sell them all they would be willing to buy and you are able to produce. And if what they were willing to buy exceeds what you are able to produce, you would make it your mission to fill that capacity.
However, if you refuse to sell to a customer on credit because you don’t think you’ll get paid you are doing the same exact thing that your online lender is doing to you when they don’t extend you further capital.
The Dangers of Stacked Funding
Enter the world of stackers—junior capital providers who are more than happy to lend you additional funding on top of what you already owe. But here’s the kicker: the rates are going to be far higher, and the terms much shorter. These lenders aren’t interested in your long-term success; they’re just there to profit from your immediate need for cash. And guess what? Brokers are often the ones who set this up because, again, they’re getting paid on that deal too.
This excessive leverage is what ruins businesses. You start stacking debt on top of debt, trying to plug holes in your cash flow or cover payroll, but all you’re really doing is tying yourself into a cycle of expensive repayments. The more you borrow, the harder it becomes to dig yourself out.
Kicking the Can: Why Businesses Take On Onerous Loans
So why do businesses keep taking on these predatory loans? Because it’s easier than making the tough decisions your business actually needs. It’s easier to take out more debt than to address the real issues in your company—issues like:
• You’re not profitable, and instead of fixing your pricing strategy, you’re borrowing to cover the gap.
• You’re collecting on receivables too slowly, but rather than tightening up your cash flow process, you’re kicking the problem down the road with more funding.
• You’re not negotiating good terms with suppliers, which eats away at your margins and cash flow.
These are all business problems, not funding problems. More debt isn’t the solution here. What you need is to confront these issues head-on. Fix what’s broken in your business. Debt should be used to fuel growth and expand your business, or to smooth out cash flow gaps responsibly—not to band-aid a poorly functioning operation.
The Hard Truth
Here’s the hard truth: stacking debt isn’t solving your problem, it’s delaying your failure. Brokers won’t tell you that, but I will. You need to stop relying on more capital to prop up a business that’s not performing well. If your business isn’t profitable, more debt won’t save you—it’ll sink you.
Instead of taking on another loan, maybe it’s time to cut expenses, streamline operations, or rethink your strategy. The real solution isn’t more capital; it’s building a healthier, more efficient business.