Lenders’ requirements should be stringent. To get a loan, a business normally has to pass a series of relatively strict criteria, to make sure that they’re in a position to pay back the loan.
Normally, this goes off without a hitch, and a business is given a loan they can afford to pay back that will give them the finance they need. In recent years, though, there’s been an increase in the regularity of an issue called “loan stacking”. Loan stacking occurs when a business is approved for a loan when they already have an existing loan to repay, with businesses often seeking the second loan to help them afford the repayments of the first. Not only does this put the business at risk, since they now have two loans to repay at once, but it also puts the lenders in potential financial difficulty. If the business defaults on its loans, two lenders now have a claim to the assets, which may not be enough to pay off one debt, let alone two. For smaller lenders, who may have taken a risk lending to the business, this could be disastrous.
John Davies, Chairman of the Association of Alternative Business Finance, recently spoke out about the issue at a financial debate. He noted that it was rapidly becoming a major issue in the UK. He also noted that businesses were making it worse upon themselves since “borrowers are completely over-committed and invariably have the wrong type of finance product for their needs”.
There’s no one-shot solution to loan stacking, but one of the better ways to help avoid putting your business at unnecessary financial risk is to make sure your finance is being handled by experienced professionals. At ASC, we’ve been helping businesses find finance for nearly 50 years now. We know which type of finance will suit your business best, and can help you get a loan that you can afford to repay without putting your business at risk. We can handle the finance, so you can focus on your business.