Key points
- Loan stacking is taking new facilities on top of existing ones, often from different lenders, until the combined repayments outgrow the cash available.
- The real cost is hidden in different rates, daily or weekly collections and fees that are not quoted as an APR.
- A single debt schedule, listing every facility on the same terms, is the first step and often changes the decision.
- Options include consolidating into one facility, refinancing the dearest facility first, renegotiating, or simply stopping.
- Consolidation and refinancing depend on affordability and usually a personal guarantee. A longer term can raise the total repaid.
What loan stacking is and why it happens
Loan stacking describes a business holding several loans or advances at the same time, typically from different lenders, with each new facility taken while the earlier ones are still being repaid. Nobody sets out to do it. It happens because:
- The first loan was sized for one purpose and a second need arrived before it was repaid.
- Fast online lenders can approve a top-up in a day, and a quick yes is easier than a hard look at the cash flow.
- A shortfall caused by the repayments on one facility is covered by another, which is the point at which stacking becomes a problem rather than a choice.
- Some providers actively market to businesses that already hold an advance, knowing that the pressure on cash makes a further offer attractive.
By the time an owner searches for help, it is common to find four or five facilities, each affordable on its own, which together take more out of the business each month than it earns.
The hidden costs of running several facilities
The headline rate on each agreement is only part of the picture. Several facilities cost more than their sum for a few reasons.
- Different pricing methods. A bank loan quotes an annual rate. A merchant cash advance quotes a factor rate, which is a fixed multiple of the advance and is not an APR. A revolving facility charges a fee on the limit whether used or not. Comparing them needs a common measure, usually the total cost over 12 months.
- Daily and weekly collections. Facilities that collect every working day, or by a percentage of card takings, leave no buffer. A quiet week still has to fund them, and the monthly loan still falls due.
- Fees. Arrangement fees, renewal fees, late-payment charges and early settlement penalties often sit outside the quoted rate. Three facilities mean three sets of fees.
- Administrative drag. Reconciling multiple direct debits, keeping several lenders informed and managing renewals costs owner time that is better spent trading.
- Stacked personal guarantees. Each unsecured facility to a limited company usually carries a personal guarantee. Directors can be exposed for far more than they realise.
How to build a debt schedule
A debt schedule is a single table with every facility on the same terms. It takes an hour and it is the most useful hour you will spend. Pull the figures from the agreements and the latest statements, not from memory. The example below is illustrative only.
| Facility | Balance | Cost basis | Collection | Monthly outgoing | Months left | Security / PG |
|---|---|---|---|---|---|---|
| Bank term loan | £42,000 | Fixed annual rate | Monthly | £1,250 | 38 | PG |
| Online lender loan | £18,500 | Fixed annual rate | Weekly | £1,980 | 10 | PG |
| Merchant cash advance | £11,200 | Factor rate | Daily, % of card takings | £2,400 (varies) | 5 (est.) | PG |
| Business credit card | £7,800 | Monthly interest | Monthly minimum | £260 | Open-ended | None |
| Overdraft | £15,000 | Daily interest + fee | On demand | £190 interest | Repayable on demand | Debenture |
| Total | £94,500 | £6,080 |
Add two more columns if you can: the early settlement figure for each facility, and the total cost to run it to the end. Then put the monthly outgoing next to a 13-week cash-flow forecast. In the illustration above, the two short facilities are responsible for most of the monthly strain even though they are a minority of the balance. That is a common finding, and it points to the answer.
Options once you can see the whole picture
Consolidating into one facility
Business debt consolidation uses one new loan to repay all or most of the schedule, leaving a single monthly payment. In the illustration, replacing £94,500 of mixed borrowing with one term loan over four or five years could reduce the monthly outgoing substantially, because the daily and weekly facilities are gone. The trade-off is that the balance is outstanding for longer, so the total repaid may be higher, and the new facility will need a personal guarantee and possibly security. Settlement fees on the facilities being cleared must be included.
Refinancing the most expensive facility first
If a full consolidation is not available or not sensible, refinancing only the dearest or most aggressive facility, often the advance or the weekly loan, can relieve most of the pressure while leaving a well-priced bank loan untouched. This is usually cheaper than consolidating everything, including facilities that were never the problem.
Renegotiating with existing lenders
Lenders can sometimes extend a term, move weekly collections to monthly, or agree a short reduced-payment period. They are more likely to do so before a payment is missed. Business debt restructuring explains how these conversations work and what to ask for.
Stopping
The one option that is always available is not to take the next facility. If the schedule shows that total repayments cannot be met from trading on any realistic terms, another loan will not change that. It will add to the balance, add another guarantee, and reduce the choices available later.
A warning about "one more" facility
Be cautious of any offer that solves this month's repayments by adding a facility with daily or weekly collections. It usually moves the problem forward by a few weeks at a higher cost. If the business is already missing payments, read our loan arrears page before applying for anything.
When to get professional or free help
If the schedule shows that repayments exceed what the business can generate, or you are using new borrowing to service old borrowing, speak to Business Debtline, which offers free, impartial advice to small businesses and the self-employed. Where the business cannot pay its debts as they fall due, a licensed insolvency practitioner may need to be involved. Finance Business Debt provides information and, at your request, introductions; it does not give debt or insolvency advice.
Frequently asked questions
Can I consolidate business loans from different lenders?
Yes. A consolidation facility can repay loans, advances, cards and overdrafts from any number of providers, subject to the new provider's criteria and the settlement terms of each existing agreement. Our guide Can you consolidate multiple business loans? goes into detail.
Is it better to consolidate everything or just the expensive facilities?
Often the latter. A low-rate bank loan or a government-backed scheme loan is usually worth keeping. Refinancing only the facilities that cost the most, or collect the most often, can give most of the benefit at lower cost.
Will lenders know I have other loans?
Usually, through credit searches, bank statements and Companies House charge records. Being open about every facility on the application avoids delays and declined offers later.
How do I compare a factor rate with an interest rate?
Convert both to a total cost over the same period. An advance of £10,000 at a factor rate of 1.3 costs £3,000 regardless of how quickly it is repaid, which over six months is far more expensive than most annual rates suggest. These figures are illustrative.
What if no provider will consolidate my loans?
That is a signal in itself. Speak to each existing lender about terms, and contact Business Debtline for free advice on the full range of options, including those that do not involve new borrowing.