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Some stacks are designed to guide growth; others are destined to trap it.
Fast-growing businesses reach a stage where the funding tools they started with, lines of credit vendor terms, short term loans, start to fall short. The needs are larger. The stakes are higher. But raising equity feels like giving up too much control, and traditional lending won’t open its doors without meeting unrealistic qualifications.
That’s the moment where capital structure decisions become critical.
Two terms often get blurred in this moment: capital stacking and loan stacking. They sound similar, but they reflect entirely different intents, and produce very different outcomes.
A capital stack is a strategic framework, designed to support expansion, manage timing mismatches, and layer funding in alignment with risk, return, and control. Loan stacking, by contrast, is what happens when multiple short-term loans are added quickly, without full visibility or strategic modeling. It eventually compresses liquidity, limits options, and adds stress where there should be space.
This guide will help you decode the language and ask better questions when funding decisions appear.
What is a capital stack?
A capital stack is the architecture behind growth. It’s how a business layers different types of funding, senior debt, subordinated loans, preferred equity, common equity, to support expansion without destabilizing operations.
The concept originated in corporate finance and real estate, but it's become increasingly relevant to high-growth businesses navigating expansion, seasonality, and rising capital needs.
Each layer in the stack serves a distinct purpose: some anchor long-term control, others provide flexible liquidity in key moments. What matters most is how the stack is sequenced and calibrated. Not just how much is borrowed, but when, how, and why.
When structured with intention, a stack gives a business room to pursue opportunities, absorb timing mismatches, and preserve options under pressure. Arranged this way, future capital decisions becomes a strategic design rather than a scramble.
What’s loan stacking?
When business loans get layered without design, the scramble returns.
Loan stacking occurs when multiple short-term loans are taken on in quick succession, often without full lender visibility, coordination, or a structured plan for repayment. Most business owners don’t intend to stack; It happens when urgency replaces design. Offers appear, approvals land quickly, and funds arrive before anyone steps back to model what it all costs or what it does to operating rhythm.
In theory, more capital means more options. But in practice, this kind of layering creates compression, not flexibility.
Payments from different lenders start to collide, drawing down liquidity before revenue cycles can catch up. Cash gets pulled in multiple directions, making it harder to meet core obligations like payroll, inventory, or vendor terms. Stress builds. Visibility drops. And as the pressure mounts, lenders respond by pulling back, tightening terms, or cutting off future funding entirely.
The danger lies in the absence of strategy. When repayment timing doesn’t match the business’s revenue flow, even well-intentioned decisions can become destabilizing. Instead of gaining control, the business loses optionality right when it’s needed most.
Example of the capital stack
American Print Shop (APS)* is a commercial printer with over $1B in revenue and $70M in senior facilities. Their core capital structure gave them stability, but when a competitor’s book of business became available, they needed to act quickly.
Their core capital structure gave them long-term stability. But it wasn’t designed for speed or flexibility. And when a competitor’s book of business suddenly became available, APS needed to act quickly/capitalize immediately/move decisively/strike while the iron’s hot/etc.
In the print industry, growth doesn’t wait. Opportunities arrive suddenly, and integration needs to be immediate. For APS, their equity stack was too slow and costly, and restructuring senior facilities would have taken weeks. Instead, they relied on another layer of their capital stack: external funding. By accessing $8 million of subordinated debt beneath their senior facilities, APS created immediate liquidity for the acquisition, kept vendor payments on track, and built a cushion for integration.
Their strategy worked because their capital stack was intentionally layered. Senior facilities provided a foundation, equity preserved long-term control, and external capital gave them flexibility when speed mattered. Together, those layers formed a structure that allowed APS to say “yes” to growth without disrupting stability.
* Client’s name altered to protect confidentiality
Example of loan stacking
Coast to Coast Distribution*, a $7M wholesale business, faced a very different story. Within two weeks, the company accepted three short-term loan offers from separate lenders, all with unique repayment cycles.
What looked like quick access to $900K in funding soon became $87K in monthly payments, each coming due at different points. Cash flow compressed, vendors went unpaid, and the business lost the flexibility it was trying to create. Instead of supporting growth, the loans boxed the company into a corner.
This is exploitative lending in practice. Urgency over coordination, opacity over strategy. Their capital was designed to serve the lender, locking the company into payments that drained cash flow and limited options.
* Client’s name altered to protect confidentiality
When stacking becomes dangerous
Stacking becomes dangerous when layers misalign. It often starts with good intentions, but over time, repayment cycles clash with revenue cycles and business rhythm begins to pull the structure apart.
These are the moments when the stack begins to work against the business:
- New debt is added under pressure rather than through a structured plan. Urgency takes the lead, and funds are layered without a plan for what happens next.
- Repayment schedules overlap with incoming revenue. Cash goes out faster than it returns, tightening operations before growth can take hold.
- Multiple lenders are unaware of each other. Without full visibility, no one can assess total exposure, including the business itself.
- Capital is added without a clear exit or return timeline. Funds are used for growth, but repayment starts before that growth can arrive.
- No one’s guiding the sequence. When there’s no capital plan, the structure gets built in reactively, making it hard to fix mid-stream.
When these patterns converge, otherwise strong businesses can feel cornered. It’s not a question of how much has been borrowed, but whether it was aligned with the business’s timing, visibility, and risk tolerance.
Stack checklist: Strategic vs. risky
So how can leaders tell the difference between capital stacking that supports growth and loan stacking that builds strain? The signals are often straightforward when the right questions are asked.
This checklist highlights the distinctions advisors look for, and the blind spots exploitative lenders rely on:
| Question | Strategic Capital Stack | Risky Loan Stacking |
|---|---|---|
| Was this planned in advance or done out of urgency? | Planned in sync with milestones and cash forecasts | Added under time pressure, documents signed before modeling |
| Are all lenders aware of each layer of debt? | Full disclosure across lenders, positions documented | Undisclosed obligations, conflicting terms, and covenants |
| Is risk properly distributed across stakeholders? | Priority of claims mapped to collateral and volatility | Short-term debt absorbs long-duration risk |
| Is there clear sequencing for payback? | Draws and amortization matched to revenue timing, exits defined | Rollovers and renewals replace real exits |
| Is the borrower optimizing costs of capital? | Blended rate modeled at the portfolio level | Unit pricing only, stacked fees compound |
| Is this about growth or survival? | Funds tied to expansion, capacity, or resilience | Funds plug gaps or past-due obligations |
A better way to fund growth
Growth favors companies that know their stack and use it with intent. A capital stack functions as a living framework, calibrated to the rhythm of the business, sequenced to match cash cycles, and adjusted as conditions change. Loan stacking is different. It’s sold for speed and convenience, concentrates short-term obligations, and serves the lender before it serves the business.
So, before you move forward with a capital stacking loan, make sure you ask the right questions.
Capital Intelligence means knowing what is being borrowed and why. Teams that design around that principle create room to act when opportunity appears, protect control, and build momentum that lasts. The next step is a conversation with a strategic advisor, like those from National Business Capital.
Get started today with our digital application.
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