Getting additional financing to fund your business may be enticing. Many online lenders are often all to willing to issues small businesses additional loans. But “loan stacking,” or getting one loan on top of another is a practice every business should avoid.

Loan stacking is just what it sounds like, taking out new loans on top of pre-existing debt. Loopholes can allow borrowers to get loans from multiple lenders over the internet. Some predatory lenders even make it their business to offer multiple loans to a single borrower.

Unfortunately the online lending landscape can make loan stacking all to easy. Online lenders often only perform soft-credit checks on potential borrowers. Soft-credit checks don’t appear on credit reports. This potentially leaves lenders without an idea of how many times a borrower may have applied for financing. Some online lenders don’t even report to credit bureaus. Essentially a lack of consistency in reporting practices, automated underwriting and soft credit inquiries leave can leave lenders unaware of loan stacking, until it is all too late.

No right minded business owner would consider loan stacking a sound financial strategy. But traditional loans can be hard to qualify for and may take a long time to process. If a business owner encounters an unexpected expenses they are likely to turn to the fastest source of financing available. The type of loan that is most frequently stacked are merchant cash advances. Merchant cash advances are an expensive type of short-term financing that is unfortunately all to easy to qualify for. Merchant cash advances are paid off with a percentage of a businesses daily revenue. As long as money is coming into a business, more than likely the owner can take out a merchant cash advance. Taking out an advance may be advisable if there is an unexpected expenses which must be paid immediately. But taking out a new advance to pay for the previous one is clearly not a good idea.

Stacking multiple merchant cash advances can leave you in a dangerous and untenable situation.

Merchant cash advances can consistently eat away at your businesses revenue streams. Everyday a percentage of your income goes to paying off outstanding cash advances. Having multiple advances at the same time means a growing percentage of your income goes to servicing your debt. Depending on the terms of the advance this burden increases, perhaps to the point where you need to take out a new advance in order to pay for the previous one. To avoid this situation keep every loan in perspective. See merchant cash advances for what they are, a short term solution for an immediate financial need.

Merchant cash advances should be viewed as short-term debt that must be paid off quickly.

Don’t use short-term financing (i.e. Merchant cash advances) to meet long term financial goals. Taking out an advance to expand your business is probably not the best idea. The advance may come due before the profit of any investment can be realized. Without the extra income from your new investment, you’ll likely need extra money to pay off your short term debt, compelling you to take out another loan . This leads to the cycle of “loan stacking.” Avoiding this debt trap involves keep each Texas Commercial Loans in perspective and have a clear strategy to pay off each one.