In the world of SME growth, momentum is everything. By April, many South African businesses are hitting their stride, eyeing expansion, or preparing for mid-year projects. When an opportunity arises that requires extra capital, the temptation to secure “quick cash” is high.
However, there is a practice in the lending industry that can turn a growth opportunity into a terminal financial crisis: Loan Stacking. At SASFA, we believe that the sustainability of the SME sector depends on transparent, fair, and responsible lending. Understanding why stacking is a red flag is essential for any business owner looking to build a resilient future.
What is “Stacking” Exactly?
Stacking occurs when a business takes out multiple unsecured finance products, such as Business Loans or Merchant Cash Advances (MCA), from different providers at the same time.
Essentially, it is having multiple exposures or security tied to the same business assets or cash flow without the original funder’s knowledge or consent. While it might seem like a way to “double up” on capital, it often signals the start of a dangerous debt spiral.
The Debt Trap: Why Stacking Erodes Resilience
The primary reason stacking is so dangerous is its immediate impact on affordability.
When a reputable SASFA member provides funding, they conduct a rigorous risk assessment to ensure that repayments won’t place undue pressure on your operations or profitability. They analyse your cash flow to determine a sustainable repayment level.
When you “stack” a second or third loan on top, that carefully calculated balance is destroyed:
- Cash Flow Suffocation: Multiple daily or weekly repayments can quickly exceed a business’s daily profit margins, leaving no room for operational expenses.
- The “Revolving Door” of Debt: Often, the second loan is used solely to keep up with the repayments on the first, creating a cycle in which the business is no longer funded for growth but for survival.
- Breach of Contract: Most ethical funding agreements require that no other unsecured loans be taken out concurrently without prior written consent. Stacking can lead to a total withdrawal of support from your primary funder.
The SASFA Standard: A “No Stacking” Policy
SASFA was established to ensure that the SME funding marketplace maintains high industry standards. Because of the risks involved, SASFA takes a firm “No Stacking” policy.
- Member Accountability: Any SASFA member found to be intentionally stacking, providing a second loan when they know a business already has an active, undisclosed one, is subject to disciplinary action.
- Mandatory Settlement: Our Code of Conduct requires that any outstanding finance obligations with other providers usually be settled at the point of new funding disbursement. This ensures the SME isn’t juggling multiple conflicting obligations.
- Affordability First: If a secondary lender is involved, it requires prior written consent from the original financier to ensure both parties agree on the client’s affordability.
Better Alternatives to Stacking
If your business has reached a point where your current funding isn’t enough to meet a new opportunity, transparency is always the better path.
- Talk to Your Current Funder: Most SASFA members are happy to purchase additional future receivables or extend financing once a certain percentage of the original amount has been repaid. This keeps your repayments consolidated and transparent.
- Request a Re-assessment: If your turnover has increased significantly since your last application, your funder can re-evaluate your limit based on your new growth.
- Seek Clarity on Terms: If you are feeling pressure, check your contract for prepayment policies or support channels. Ethical funders want to help you resolve issues professionally.
Resilience Over Speed
A resilient business isn’t necessarily the one that grows the fastest; it’s the one that grows the most sustainably.
The SASFA Code of Conduct exists to protect you from the traps that micro-lending environments often create. By choosing lenders who follow these “best practices,” you ensure that your funding is a tool for value-add, not a source of debt.
As you scale this April, remember: look for the SASFA seal. It’s your guarantee that your lender is committed to your business’s long-term health, not just a quick transaction.
