Understanding the Stacking Problem

How It Happens

The mechanics of stacking are straightforward. A merchant who qualifies for a $50,000 advance from one funder can often obtain similar advances from three or four others within the same week. Here's why:

1. Information asymmetry — Funders rely on UCC filings to check for existing positions, but UCC databases have a 48-72 hour processing lag. A merchant can close four deals before any of them appear in the system.
2. Broker incentives — Some brokers submit the same merchant to multiple funders simultaneously, earning commissions on each funded position. While this practice is considered unethical by industry standards, enforcement is virtually nonexistent.
3. Merchant desperation — Merchants in financial distress are most likely to stack, taking on more debt to cover existing obligations — creating a debt spiral.

The Math of Destruction

Consider a small restaurant doing $40,000 in monthly revenue. A single MCA with a 15% holdback ($6,000/month) is manageable. But when that restaurant stacks four positions from four different funders, the combined daily holdback can reach $800-1,000 per day — more than the business generates in revenue. Default becomes inevitable.

James Hartwell, Chief Risk Officer at Rapid Capital Funding, quantifies the impact: "In our portfolio, merchants with three or more simultaneous positions default at a rate of 62%, compared to just 11% for merchants in first position with no stacking. The data is unambiguous — stacking kills deals."

Industry Default Data: The Stacking Correlation

Moneyline's analysis of 85,000 funded deals across 15 reporting funders reveals a clear correlation between position count and default risk:

Data: Moneyline Industry Default Study, 2025-2026. Based on deals originated Jan 2025 - Dec 2025 with minimum 90 days of performance data.

The data tells a clear story: each additional position roughly doubles the default risk while cutting recovery rates in half.

Why Existing Solutions Fail

UCC Filing Databases

The most common tool for detecting existing positions is the UCC (Uniform Commercial Code) filing database. When a funder files a UCC-1 against a merchant's receivables, it creates a public record that other funders can search. In theory, this should prevent stacking. In practice, it doesn't.

The core problem is timing. UCC filings take 48-72 hours to appear in searchable databases after submission. In an industry where deals are funded within 24 hours, this lag creates a massive blind spot.

Manual Position Verification

Some funders attempt to verify positions by calling the merchant or requesting a "position letter" from existing funders. This approach is slow, unreliable, and easily circumvented by merchants who aren't forthcoming about existing positions.

Technology Solutions on the Horizon

Several companies are racing to build real-time position tracking solutions:

FundingMetrics recently launched a real-time position tracking feature that aggregates data from participating funders to create an up-to-the-minute view of merchant positions. Early results are promising, with participating funders reporting a 35% reduction in stacking-related defaults.

AdvanceTrack, a new entrant backed by $12M in venture funding, is building a blockchain-based position registry that creates an immutable, real-time record of all funded positions. The system is currently in beta with 8 funders.

A consortium of 20+ funders is working with industry groups to develop a shared database standard. The initiative, led by the SBFA, would create a centralized position registry with mandatory participation for member funders. However, progress has been slow due to competitive concerns and data-sharing hesitancy.

What Funders Can Do Now

While waiting for industry-wide solutions, funders can take several steps to reduce stacking exposure:

1. Implement real-time bank statement monitoring — Look for ACH debits from other funders in the most recent bank statements
2. Require same-day UCC searches — Run UCC searches at the time of funding, not just at approval
3. Join a position-sharing network — Platforms like FundingMetrics provide real-time visibility among participating funders
4. Implement position covenants — Include contractual prohibitions against additional positions without funder consent
5. Monitor post-funding — Set up automated alerts for new UCC filings against funded merchants

Frequently Asked Questions

Is stacking illegal? Stacking itself is not illegal, as MCAs are typically structured as purchases of future receivables, not loans. However, merchants who misrepresent their existing positions may be committing fraud, and brokers who facilitate stacking without disclosure may violate funder agreements.

What percentage of MCA deals involve stacking? Based on Moneyline's data, approximately 51% of funded MCA deals involve some degree of stacking (2+ simultaneous positions), though not all stacked deals result in default.

Can merchants be held liable for stacking? Most MCA agreements include representations that the merchant has disclosed all existing positions. Violations of these representations can provide grounds for legal action, though enforcement is costly and recovery is uncertain.

Data methodology: Analysis based on anonymized, aggregated default data provided by 15 MCA funders representing approximately $6B in annual originations. Data period: January 2025 – December 2025. Reviewed by James Hartwell, CRO of Rapid Capital Funding.