In Credit, Industry

The 4 Types of Small Business Loan Stacking

Not all stacks are created equal – but they may be equally tragic.

As you can imagine, having been in business just nine months now, our portfolio at Herio is still small enough that we have eyes on each of our accounts. We’ve celebrated the handful that have paid us in full, we’ve renewed those that have become eligible, and fought to renew those that have requested payoffs. And believe it or not, we still get upset over single missed payments. Just part and parcel, I guess.

We have a dozen or so deals that we consider impaired: those that have either missed several payments, have requested and received some sort of workout plan, or have ceased to make payments altogether. Outside of three or four of these accounts, they all have something in common: they’ve stacked on us.


For those of you who are unfamiliar, stacking occurs when a merchant has a current daily pay loan or cash advance and decides to accept another, either of their own volition or by the enticement of someone else.

As we underwrite with a focus on determining the maximum daily payment that a merchant can afford, that second payment almost inevitably becomes too much for the merchant to sustain.


So far, we’ve seen four types of stacking:

  1. The most common stacking comes from an outside broker or lender whose modus operandi is to find merchants through UCC searches and other methods, timing it so their loans are funded and fully paid while the merchant is still on our books.
  2. Second are those lenders that are so “technologically enabled” that they fail to see whether or not a customer currently has a daily pay loan or cash advance.
  3. Third is the broker that initially brought us the deal. Defensively, we’re told that the merchant was going to get additional funds regardless and, since they were not yet eligible for a Herio renewal, they really had no choice but to do so themselves or face losing the merchant.
  4. Today we got to see the fourth type. Perpetrated solely by the merchant, deliberately or not, with two approvals in hand they chose to complete their paperwork and receive funding from us, just to do the same with the other lender a few days later. Needless to say, they called us crying today begging for relief.


In speaking with members of the community, we’ve been told to accept stacking as the new reality and to expect that this practice will continue to increasingly occur. Others have given us advice, encouraging us to “get in the game” and take second and third positions. Some have even scheduled meetings with us with subjects like “Stacking Strategies” – sheesh!

In my opinion, stacking will only perpetuate higher default rates, subsequently raising borrowing costs for us and for our clients. At a time when our industry is finally beginning to be viewed as a legitimate source of working capital for small businesses, my fear is that this will push us backwards, and may force regulators to step in to save small business owners from predatory lenders taking advantage of ill-informed borrowers.

There’s a better way to serve The Small Business Community. Stay tuned.

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