Many small businesses require intensive amounts of capital to both stay afloat and expand their services or products. Whether you’re constantly trying to keep up with inventory requests or you want to capitalize on a new expansion opportunity, taking out a business loan may seem like the only answer.
You can, however, land in dangerous waters when your business keeps demanding more capital and you end up taking out more than one loan to keep up with your cash flow. To avoid this situation, take a look at your capital needs and see if equipment leasing may better suit your situation.
Here’s everything you need to know about using equipment leasing as an alternative to loan stacking.
How Does Loan Stacking Work?
Loan stacking is when you take out more than one loan at a time. Traditionally, banks require that you repay one loan before you can qualify for another one. But online lenders, who are typically more competitive than brick and mortar banks, oftentimes allow for loan stacking. You may not be able to take out multiple loans with the same lender unless you meet certain requirements. It is possible, though, to find other lenders who are willing to offer loans despite your current debt load.
Why Use Equipment Leasing Instead?
The downside, of course, is that your cash flow can be severely restricted if you stack too many unsecured loans. In a worst-case scenario, you could end up defaulting on the initial loan if stacking other loans violates your agreement.
Equipment leasing, on the other hand, can be complementary to an existing business loan. The equipment itself serves as collateral and you don’t have to worry about a large down payment if you need an equipment loan. Plus, you can lease all kinds of equipment, not just heavy machinery. Even software, technology, and office furniture can be leased.
The Bottom Line
Before you consider loan stacking to navigate working capital issues in your business, read any existing loan terms in depth so you don’t inadvertently violate your agreement. Then consider equipment leasing as a safer alternative to improve the financial health of your company.