What is Stacking and Why Should MCA Recipients Avoid It?

Stacking, in the context of merchant cash advances (MCAs), refers to the practice of obtaining multiple MCAs simultaneously or in rapid succession. It involves taking on additional funding from different MCA providers without paying off existing advances. While the option may seem enticing to business owners seeking quick access to capital, it is generally not advisable. Stacking can lead to severe financial consequences and should be avoided.

First, stacking can quickly escalate the debt burden of a business. Each MCA comes with its own set of repayment terms, including daily or weekly payments deducted from the revenue of the underlying business. By stacking MCAs, business owners increase the total amount they need to repay, potentially straining their cash flow and impeding their ability to meet other financial obligations.

Second, stacking can significantly impact the creditworthiness of a business. Multiple MCAs may require the business owner to grant blanket liens or personal guarantees, putting their assets and personal finances at risk. Moreover, stacking can result in missed or late payments, negatively affecting the credit score of the business and potentially the owners. This can make it more challenging to secure future financing options, such as loans or lines of credit, and can limit the growth potential of the business.

Stacking may be in direct conflict with your MCA contract. Family Business Funding specifically prohibits stacking.  Page 15, Section 2 of the contract explains the fees associated: “Additional Funding/”Stacking Fee”. In the event the Seller or Guarantor takes on additional funding (“stacking”) at any point after being funded by the Purchaser, without prior written notice by the Purchaser, the Seller agrees to pay the Purchaser a $25,000 penalty or Ten Percent (10%) of the calculated payback amount, whichever is higher. The Purchaser reserves the right to declare the account in default at any point after receiving notice of unauthorized stacking, regardless of the payments made by the Seller or Guarantor.” Page 9, section 19b of our contract states: “Seller shall not enter into any merchant cash advance or any loan agreement that relates to or encumbers its Future Receipts or requires daily payments with any party other than Buyer for the duration of this Agreement. Buyer may share information regarding this Agreement with any third party in order to determine whether Seller is in compliance with this provision.”

In conclusion, while stacking MCAs may offer a temporary solution for immediate funding needs, business owners should exercise caution and avoid this practice. The long-term consequences of stacking can outweigh the short-term benefits, leading to increased debt, cash flow challenges, and potential damage to the business’s credit.