Stacking
Stacking is the practice of a merchant taking multiple cash advances from different funders simultaneously without disclosing existing positions — violating most MCA agreement covenants and dramatically increasing default risk for all stacked positions.
Why This Matters
Stacking is the highest-risk behavior in MCA portfolios. Merchants stack typically because their cash flow can't service the original deal, or because brokers steered them to multiple funders. Once stacked, default rates spike — combined daily holdback withdrawals exceed sustainable cash flow. Detection signals: multiple recent UCC filings from different funders, holdback exceeding 30% of receivables, and multiple recurring ACH withdrawals from different funder accounts. Most MCA agreements include explicit anti-stacking covenants and acceleration clauses if stacking is detected post-funding.
Example
Merchant has 3 stacked positions: Funder A daily $400, Funder B $350, Funder C $300. Combined daily debits $1,050 against $80K monthly revenue (approximately $2,667/day average). 39% revenue diversion to debt service — unsustainable. Default expected within 60-90 days; funders pursue collection in priority order based on UCC filing dates.
Frequently Asked Questions
Frequently Asked Questions
How do underwriters detect stacking before funding?
UCC search showing multiple recent filings from different funders. Bank statement analysis revealing multiple recurring ACH withdrawals from different funder accounts. Cross-reference declared positions in application against UCC and ACH evidence — discrepancies indicate undisclosed stacking risk.
Is stacking illegal?
Stacking violates most MCA contract terms but is not inherently criminal. Misrepresenting existing debt during application can constitute civil fraud. Most funders pursue contract remedies (default acceleration, COJ enforcement where available, UCC-secured collection) rather than criminal charges, though aggressive bad actors face fraud allegations.