In our first article on why loan stacking is not a good idea for your business, we explored the risks of stacking, when businesses take on multiple funding products at once, leading to overlapping repayments, high costs and financial pressure.
One product that often enters the conversation around stacking is the Merchant Cash Advance (MCA). While MCAs are a popular and reputable funding tool offered by many SASFA members, they can create financial strain when misused, especially when layered with other short-term products.
The Role of MCAs in Responsible Funding
A Merchant Cash Advance provides a lump sum of working capital in exchange for a portion of future sales, usually repaid as a percentage of daily card transactions. It’s designed to align repayment with your business’s cash flow, making it well suited for businesses with seasonal or fluctuating revenue.
When used strategically, MCAs offer:
- Fast access to capital
- Flexible repayments that move with revenue
- No need for fixed monthly instalments
But as with any financial product, the key lies in how it’s used.
Brent Downard, Head of Credit at Merchant Capital, and SASFA member, explains:
“Loan stacking might seem like a quick fix, but it often results in overwhelming repayment obligations, higher interest rates and ultimately, strained cash flow.”
He shares an example of a business who accepted additional capital offers from unregulated lenders:
“Ultimately, 50% of this client’s revenue was being used to repay loans. Even though their mark-up on goods was 100%, they were essentially using 100% of their gross profit just to service their debt. It was just not sustainable.”
This is exactly the kind of scenario SASFA aims to prevent through ethical funding practices and lender accountability.
Signs You’re Using an MCA Wisely
An MCA can be a powerful tool when:
- It’s used for a revenue-generating opportunity, not to cover existing debt
- You fully understand the repayment terms and factor rate
- It’s the only active short-term product in your funding mix
- Your funding partner conducts proper affordability checks
What SASFA Recommends
To avoid stacking and promote healthy borrowing:
- Work with SASFA-accredited lenders who follow strict disclosure and affordability guidelines
- Avoid taking on additional funding without consulting your primary funder
- Seek advice to structure a funding plan that supports long-term sustainability
Merchant Cash Advances can support business growth when used correctly. They offer flexibility and speed, but they should always be part of a structured and well understood financial plan.
SASFA is committed to ensuring that South African SMEs have access to funding that is fair, transparent and designed for long-term success. If you’re unsure about your funding structure or need guidance, speak to a SASFA member before making your next move.
