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How flattering! Your business lender is offering you more small business loans. They must be really impressed with your business. And you could really use some extra cash right now. This is an offer you shouldn’t refuse, right?

Not so fast. Do you actually need this extra debt? Small business loans are essential at some point. They can pave the way to success for your business. But borrowing too much, or too often, can backfire in a big way. Before you know it, you’ve become a small business loan junkie, hooked on borrowing just to get by.

HOW DOES THIS HAPPEN?

Cash flow problems are a normal part of small business life. It’s hard to imagine any industry where you could count on steady, consistent income. Maybe your sales have seasonal peaks and dips. Or your customers are slow to pay. Regardless, you can count on monthly bills to come in steadily.

You take out a small business loan to cover your temporary shortfall. But then some piece of equipment breaks down. You have to pay for repairs. Or, worse, replacement. You use your business credit card or line of credit.

And so it goes. You’re stacking one business loan on top of another. Multiple unsecured business loans and merchant cash advances. That creates a downward spiral of debt. Try as you might, you just can’t seem to get ahead. Working capital? What working capital? It’s all going to repay your business loans.

SO SHOULD YOU TAKE THAT NEW LOAN OFFER?

I always say you should never borrow more money than you need now. It saddles you with too much debt. That said, there are times when taking out a second loan does make sense. It might be an emergency, as I noted above. You have no choice. Or it might be a last-minute opportunity. Will grabbing that opportunity bring you enough revenue to repay the second loan? If so, it makes sense. If not, it’s not really an “opportunity” after all.

This is a good rule of thumb for all borrowing. Will your cash flow support repayment without putting you in a bind?

Sometimes small business owners think they have to stack loans. You need a large amount of money. But your business can’t qualify for that size loan. Piecing together your funds from multiple sources may work. But it may not be a good idea.

CONSIDER ALTERNATIVES FIRST

Before you decide to take on more business loans, evaluate all your other options. I know that can be daunting. You may not realize what choices you have. Even if you’re an experienced small business loan junkie. Besides, small business loans can differ quite a bit. One may make sense for you when another does not.

That’s why we’re here to help. Our United Capital Source team knows hundreds of lenders. We know what they do best. And whether they are the best match for your business. We are 100% unbiased, so you can be confident we’re giving you straight information. We aren’t some sketchy lender trying to talk you into stacking small business loans.

If you already have too many loans – or you’ve been a serial borrower – your business credit has probably suffered. I can tell you that the right business loan can help get you out of the hole. And it can help rebuild your credit.

It might be something like accounts receivable loans. Or even a merchant cash advance. My point is you are not alone. That’s why there are small business loans aimed at helping you repay debt. That way you can get clear. Start with a fresh slate. It may not be fun at first, but you’ll appreciate the results later on. And you will be well-informed to make your next borrowing decision.

KICK THE OVER-BORROWING HABIT

Relying on small business loans to function is no way to grow your business. In fact, it guarantees you won’t grow. More likely, your business will cease to exist. And you could be left personally holding the bag for repayment. This wasn’t your dream!

You need a better plan – two plans, actually:

  1. A plan to improve your cash flow long term, not dependent on small business loans
  2. A long-term borrowing plan that strategically supports your overall business plan

I recommend you implement both these plans. And stick to them religiously. That will give you more working capital to manage your business more efficiently. It will help rebuild your business credit over time. Then, you’ll be eligible for small business loans when you need them for a specific purpose. Not to prop up your business, but to expand. Now that’s your dream!

Review what it takes to obtain a business loan from a bank. That may not seem relevant now. But as a business owner, you need to know this. It will help you https://www.sba.gov/starting-business/business-financials/borrowing-money-your-business develop a sharper borrowing plan.

When you’re prepared, you have more options. Say you need emergency repairs. Or you’re offered a new opportunity. You need extra cash quickly. This is when small business loans make sense. As long as you aren’t already in over your head.

Loan stacking drags down your business credit score. And ruins your chances to borrow when you really need it. Lenders assume – rightly – that you won’t be able to repay them. At United Capital Source, we work with small business owners who have bad credit. We can help you find financing based on other criteria. Such as your history of credit card sales. This type of funding gives you the money you need now. And repayment rides with your future sales. That way, it’s always affordable.

The National Federation of Independent Business says, “Only get the second or third loan if your business plan indicates you will be able to pay it off.” They say, “Small business owners are often so caught up in running their businesses that they lose touch with the financial side of their own companies.” Learn the risks of loan stacking, they advise. Then you can decide whether or not you want to take that financial step.

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