Let us help you decide whether taking on multiple loans is the right choice for your company.
If business is on the up and your company isn’t getting the cash it needs from your current loan, you may be wondering whether it’s time to apply for one or even a couple more.
Whether you’re looking to replenish stock that’s flying off the shelves or to cover your increasing wages, loan loading is a serious consideration for an expanding business. Whatever the loan purpose, the potential consequences of applying for another loan must be considered before any decision is made.
The right business for multiple loans
There are many reasons your company might feel that a second loan is necessary. It could be that the previous lender provided you with less than expected or maybe production at your firm has dramatically increased since your original loan began. Either way, you need to be confident that a boost in funds now will ultimately mean greater revenue down the road.
How do the banks feel about this?
Thoughts on loan loading from banks and other lenders are overwhelmingly negative. They consider the loan you have been granted to be a carefully calculated sum of how much you will be able to repay in the given time. Taking on a second loan is vastly increasing the risk of defaulting on the first loan, with no added reward for the lender.
Will the banks let you "loan load"?
Many banks and lenders have rules and administration in place to prevent their customers from taking out more than one loan at a time. Those that don’t have these policies will likely still be reluctant to offer you approval. Your best chance of making it happen is with evidence of regular repayments and a faultless credit score.
Factors such as late payments, previously leveraged assets and high interest rates will make getting another loan difficult. In these circumstances, the bank or lender may be unconvinced of your ability to keep up with more fees and repayments.
Can you avoid "load loading"?
If you're applying for business finance and not sure if you'll need to top up your loan in the future, there are ways you can safeguard yourself now. Consider some of these finance options:
- Business line of credit. A business line of credit lets you draw up to and including a certain limit and you only make repayments on what you use. You can be approved for a higher limit than you need and use it should the need come up.
- Business overdraft. Attached to a business bank account, an overdraft lets you draw over your available funds, putting your account in the negative up to a predetermined limit. You pay interest on the amount you use plus a monthly or annual fee for the account. When the overdraft funds are repaid you stop paying interest until you need it again.
- Credit card. You can opt for a personal credit card or a business credit card and only use it when you need it. If you have a no annual fee credit card you'll only pay interest on the funds you use and you can take advantage of benefits such as additional cardholders and frequent flyer points.
Finding the right lender
If you are not being accepted by the most popular banks, it can be tempting to seek alternative financing. While there are several reputable companies offering alternative finance, some lenders have begun offering multiple loans to companies, only to increase fees and interest rates later on.
Always look into the reputation of the lender before you do business with it and read through any documents carefully prior to signing them. Lenders should be upfront with all fees and rates and be transparent with the structure of the loan.
Is there anything else to consider?
Taking out a second loan to help you clear another one is a dangerous and unsustainable tactic that will only serve to increase penalty charges and debt. If paying off a loan is causing you difficulties, it’s time to consider other options such as invoice factoring and even negotiating with your creditors.