Can I Get Multiple Business Loans?
Have you taken out a loan for your company then found yourself in need of additional funding? Your situation is understandable. Many business owners find themselves in the same spot, and there are only so many solutions for this financial hurdle. Please take a look at our detailed breakdown of loan stacking and other possible alternatives open to you.
What is Loan Stacking?
It involves taking out several business loans at the same time from different business lenders. It has become common practice because business owners frequently need extra capital after taking a business loan. While this borrowing strategy might work in favor of some entrepreneurs, others find themselves overwhelmed by debt and unable to service them or pay them back entirely.
Advantages of Stacking Loans
Despite the significant risks posed by taking out numerous loans at once, the practice provides several benefits.
If your business requires a time-sensitive expense to remain functional or keep up with the competition, your best bet might be taking out an extra loan. It will be processed way faster than a new one, and you can solve your issue as fast as possible.
Improves Credit and Business Lending Relationships
Making punctual and consistent payments for all your loans will significantly improve your commercial credit score and put you in a better position to apply for more funding in the future.
Taking extra funds to put into your business will most likely produce greater returns and, consequently, contribute to your business's growth.
Risks Involved for Business Owners
Stacking loans may seem like a brilliant idea when you put the money into your business and start making good returns. However, if you do not take precautions, you are bound to find yourself on the wrong end of debt collection.
This business practice conveys four significant risks:
- With numerous loans to service every month, even excellent business cash flow is bound to suffer. A large portion of your proceeds will most likely go to paying off the loans, and you might find yourself strapped for cash to pay your bills and restock your business.
- Most business lenders have specific terms and conditions prohibiting the advancement of additional loans; therefore, taking out extra loans may make you seem like a riskier borrower.
- Once you have managed to get yourself into this vicious cycle of debt, your only option might be to borrow more so you can pay off the outstanding loans. This practice will ensure that you are perpetually in debt and hence unable to advance yourself financially.
Alternatives to Loan Stacking
The temptation to take out additional funding for your business can be high, especially with the ever-rising costs of operation and overhead. The amount you once thought sufficient for all your business needs suddenly seems too little, and you need more. Instead of getting extra loans and trapping yourself in an eternal fix, consider the following options to get your business more money.
Look for complimentary loan products
Complementary loan products are not similar to the stacking of loans. While the latter often involves several loans with identical characteristics and payout plans, the former allows for two different loan types to coexist with minimal pressure on the borrower. These complimentary loan products include:
- Cashout refinancing using real estate as collateral
- A sales leaseback using your equipment to guarantee the loan
- Invoice factoring using your receivables to obtain financing
The security assets tied to these products are distinct for every loan, and the borrower can use the money to take care of different business needs.
Consider a line of credit
You can apply for a credit card and use it to pay your bills or employees when you don't have enough money. As long as you use it responsibly and avoid making an overdraft or exhausting your balance, you will always have ready cash when you need it. Ensure that you make your monthly payments in full and on time to maintain and even improve your credit score.
Ask your current lender for more financing
If you have a positive payment history with your current private business funding company, they will usually offer you additional financing. Many lenders are especially open to this if you’ve already paid off a significant portion of the debt.
Refinance your business loan
It means that you take out a new loan to pay off other outstanding loans. Refinancing may sound like a counterproductive idea, but it might be the best option for your business. It may offer you the extra funds that you need while lowering your overall monthly payments.
Consolidate your debts
If your lenders allow it, you can condense your debts into an individual loan. That will enable you to make single payments instead of several small ones each time. There are programs for business loan consolidation that will help to free up your cash flow.
Lease your equipment
Instead of taking out another loan advance to help you buy, repair or replace equipment for your business, you can lease your equipment from a company that allows leasing of the kind of equipment your business needs. Leasing equipment is significantly cheaper than buying brand new equipment, and you will save some money for other expenses.
GoKapital offers a wide range of business loans and commercial financing products: check out our site for more information.