MCA Stacking: The Downward Spiral That Traps Businesses

When one merchant cash advance isn't enough to solve cash flow problems, business owners often take another. Then another. This creates "stacking"—multiple daily ACH pulls that can drain working capital faster than revenue comes in. Here's how the spiral works and how to escape it.

How Stacking Happens

It rarely starts with a plan to stack MCAs. The typical progression looks like this:

1. The Initial Advance: A business needs capital for inventory, equipment, or a cash flow gap. Traditional financing isn't available or takes too long. An MCA provides quick funds with daily ACH repayment.
2. The Squeeze: Daily payments reduce available working capital. The original cash flow problem returns—often worse because now there's a payment obligation on top of it.
3. The Second Position: Another funder offers a "second position" advance—money on top of the existing MCA. It provides short-term relief but adds another daily debit.
4. The Third Position: Cash flow gets tighter. Another funder offers money. The cycle continues.
5. The Breaking Point: Combined daily payments exceed daily revenue. The business is bleeding cash every single day with no sustainable path forward.

The Math of Stacking

Let's look at how stacking destroys cash flow:

Why Funders Enable Stacking

You might wonder why funders would advance money to a business already struggling with existing MCAs. Several reasons:

• Higher factor rates: Second and third position funders charge more because they're taking more risk
• Short-term focus: Many funders syndicate their deals and collect fees upfront—they're less concerned about long-term sustainability
• Volume pressure: Sales reps have quotas to meet and commissions to earn
• Incomplete information: Not all funders see the complete picture of existing obligations

The result is a system that profits from putting businesses in unsustainable positions.

Warning Signs You're Headed for Trouble

Watch for these indicators that stacking is creating real problems:

• Cash balance never recovers: Money comes in, goes right out to payments, and you're always near zero
• Needing advances to make payroll: Operating capital should come from revenue, not debt
• NSF notices: Insufficient funds on ACH pulls means timing is getting critical
• Taking draws from newest position to make payments: Using borrowed money to pay borrowed money
• Can't quote payoff amounts: You've lost track of what you actually owe
• Brokers calling constantly: When you're in the system, everyone knows you're a repeat customer

Breaking the Cycle

Getting out of stacked MCAs requires strategic thinking, not panic moves. Here's the general approach:

Step 1: Complete Position Analysis

Document every position: advance amount, payback amount, current balance, daily payment, and days remaining. You need complete visibility before making any decisions.

Step 2: Cash Flow Reality Check

What can you actually afford in daily payments? Not what you wish you could afford—what your real cash flow supports. Be honest here; wishful thinking makes things worse.

Step 3: Evaluate Options

Depending on your situation, options might include:

• Payoff with refinancing: Replace multiple expensive positions with single, lower-cost financing
• Sequential payoff: Focus resources on eliminating the smallest position first (fastest win)
• Term modification: Negotiate with funders to reduce daily amounts and extend terms
• Operational improvements: Increase revenue or reduce costs to create more payment capacity
• Seasonal strategy: If you have peak seasons, structure paydowns around them

Step 4: Execute Strategically

Whatever approach you take, sequence matters. The order in which you address positions, the timing of negotiations, and the sources of payoff capital all affect outcomes.

What NOT to Do

Some common "solutions" actually make things worse:

• Don't block ACH payments without understanding consequences—this triggers immediate default and often COJ judgments
• Don't take another advance to "consolidate"—more expensive capital rarely solves a problem created by expensive capital
• Don't engage debt settlement companies that promise to "make it go away"—legitimate resolution requires real work, not magic
• Don't ignore the problem—stacking situations don't improve on their own

Prevention: Never Getting Here

If you're considering your first MCA, think carefully before signing:

• Calculate the true cost (see our Factor Rate vs APR article)
• Model the daily payment against your actual cash flow
• Have an exit plan before you start
• Explore alternatives—SBA loans, lines of credit, even owner injection
• Get contract terms reviewed before signing

MCAs aren't inherently evil. They serve a purpose for certain short-term needs. But they require informed decision-making and sustainable planning.