Business loans should be a way for you to grow your business—sometimes that comes in the form of paying off existing bills and obligations before you can focus on future expansion. That’s an entirely common and valid reason to apply for a loan—and one we frequently fund. However, sometimes the lure of additional money to fund your business can be too enticing, and that’s where small businesses and lenders can get into trouble.
So why is loan stacking so bad?
Businesses unusually have a lot of risks involved, so by stacking a loan on top of another one only increases this financial burden even more and makes it nearly impossible to ever pay off the debt accrued from multiple loans. When a business owner does this their risk goes way up without an increase in reward (interest income).
A common loan stacking method is to get multiple loans—either directly, or through a broker—from different lenders to reach your desired loan amount. Many online lenders have failed to detect the “stacking” of multiple loans by small business owners who slip through their automated underwriting systems.
At BriteCap, we have policies that prevent participating in loan stacking—but want to make you aware of the fallbacks to this practice. It’s our rule to never leave a business worse off than when they came to us—and if we lend to an SMB that is borrowing more than we believe they can pay back, that’s exactly what happens.
Loan stacking is tempting—the promise of a lot of money spread over a few loans sounds too good to be true—and it is. It’s a method that we, and many others, actively discourage and won’t be part of. The money you would receive for the initial funding of the loan would not offset the repayment you’d owe on it, and in almost all cases would place your business in a massive financial hardship. Reputable lenders take your business into account when offering you a loan amount—believe me, we want to give you as much as you are applying for because we want to help you grow—but if the numbers don’t hold up, we can’t do it—it’s unethical. We are sure you can find dishonest lenders out there who ignore this bad practice and who really don’t care about putting your business at risk of default and bankruptcy. Do you really want to feel trapped, where you are paying nearly 40 percent interest on one loan to help you pay off the first loan?
At the end of the day, we believe it’s better for you to keep your business and grow it responsibly rather than set it up to fail through insurmountable debt.
Being a responsible lender is what has set us apart for the past decade from other online lenders—and we’d like to see your business grow with us for the next decade in the same manner.