Today’s blog brings you a perspective on the lending world from none other than Merchant Advance Capital’s President and CEO, David Gens. We have received numerous questions about “stacking” or obtaining financing from different sources simultaneously, and whether this is a good idea for your small business. Read on for David’s insights on this pertinent issue!
One of the hot issues being discussed in our industry is “stacking.” Stacking occurs when a business already has financing from an alternative lender and then gets additional financing from yet another lender. The financings are then said to be “stacked” on top of each other. As the alternative business lending industry grows and becomes more competitive, funding providers are gradually taking more risk and increasingly participating in stacked financings. In this post I will explain Merchant Advance’s position on stacking.
At Merchant Advance, we are generally opposed to stacking. The reason is simple – in the vast majority of cases where a business has stacked, the resulting combined daily payments are too much to manage. Merchant Advance carefully analyzes each business in order to structure the appropriate daily repayment. This analysis takes into account seasonality of cash flow, profit margins, and fixed vs variable cost structures. In doing so, we are often trying to get the business owner the most financing possible to satisfy their needs.
After our financing is in place, if the additional burden of a stacked financing is placed on the business (most likely doubling the daily repayment), this will quite likely be too much to manage. Among businesses we have worked with in the past, it is our experience that this has proven to be the case. The stacked financing ends up being bad for everyone involved – the business owner ends up worse off and as a result Merchant Advance ends up being worse off. As these stacked deals are risky, the providers doing the stacking usually ensure their deals are short-term and expensively priced. It is generally a bad idea all around.
That’s why at Merchant Advance we avoid stacking as a matter of principle. We make a point of actually paying off the balance outstanding with any other lenders ourselves as part of our financing – this is the right thing to do for the business owner and for the existing lender that was there before us.
If you have a balance with another company, please give us a call: it is still more than likely that we will be able to help you. Alternative lenders often offer discounts for repayment of your account in full with a lump sum payment – you may be able to take advantage of this while simultaneously obtaining additional capital from Merchant Advance. The important thing is to run your numbers to ensure the financial arrangements you enter into will work for you and leave you better off. The staff at Merchant Advance are always available for a conversation to help you make this determination.
On behalf of everyone at Merchant Advance Capital, we wish you a happy new year and all the best in 2015!
President & CEO
Merchant Advance Capital