For many SMEs, cashflow pressure does not arrive all at once. It starts with a delayed customer payment, a seasonal dip in revenue, rising costs or an unexpected opportunity that requires investment.
When funds are tight, the temptation to take out another short-term loan can seem like a sensible solution. However, industry bodies are warning about a growing problem known as “loan stacking”, where businesses layer multiple facilities on top of each other, often creating more problems than they solve.
The National Association of Commercial Finance Brokers (NACFB) recently warned that loan stacking risks creating “significant risks” for SMEs.
“What may initially appear to be a short-term solution can quickly develop into an unsustainable cycle of borrowing, with new facilities used to meet existing repayments, cover persistent cashflow shortages or repay maturing debt,” the NACFB said.
“This can increase the customer’s financial vulnerability and may ultimately cause serious financial harm.”
The hidden cost of multiple loans
Businesses often focus on whether they can obtain finance quickly rather than whether that finance genuinely improves their position. Speed is not the same as suitability and SME owners must consider whether a new loan would solve their problems or simply add to them down the line.
The risks of loan stacking include:
· Higher total monthly repayments
· Increased interest costs
· Reduced working capital
· Greater pressure on cashflow during quieter trading periods
· Difficulty securing future funding
· Increased risk of defaults or missed supplier payments
In short, multiple expensive loans can leave business owners spending more time managing debt than running their business.
When refinancing makes sense
Access to finance remains essential for growth, investment and resilience. The challenge is ensuring that borrowing is structured appropriately.
For SMEs carrying multiple short-term or high-cost facilities, refinancing to a more affordable and appropriate term loan structure can often provide a more sustainable route forward. By consolidating existing debts into a single loan, businesses may be able to:
· Reduce their monthly repayment commitments
· Simplify their finances with one lender and one payment
· Improve cashflow visibility
· Extend repayment terms to better match business performance
· Replace expensive short-term borrowing with more affordable funding
Rather than continually adding new facilities, refinancing allows businesses to reset their debt structure and create breathing space for future growth.
How a LendingCrowd loan could help
At LendingCrowd, we regularly work with established SMEs that have outgrown expensive short-term borrowing arrangements.
A well-structured business loan can be used to refinance existing debts and consolidate multiple facilities into a single manageable repayment. This can help reduce pressure on working capital and provide the certainty businesses need to focus on customers, growth and profitability rather than juggling several lenders.
Every business is different, of course. The key question is not simply whether additional finance is available, but whether it improves your long-term financial position.
If your business is carrying several loans, cash advances or short-term facilities, it may be time to step back and assess the bigger picture. Refinancing could provide a more affordable, sustainable and manageable solution than adding yet another repayment obligation.
Before taking on additional borrowing, consider whether consolidating existing debt into a single LendingCrowd loan could help put your business on a stronger financial footing for the years ahead.
