High-Cost Lending: A Strata Briefing

The problem is not access. It is affordability.

Alternative lenders and automated underwriting have made it easier for smaller firms to apply for money online, receive a decision quickly and get cash within days. That can be valuable when a business is waiting on an invoice, covering wages or trying to keep suppliers moving.

The warning is what happens when a business already under pressure is given more expensive credit. A short-term facility may solve today’s gap, but the repayment can create tomorrow’s gap. If the business borrows again to cover it, the cycle becomes loan stacking.

What loan stacking looks like

Loan stacking often starts innocently. A business takes one facility for working capital. When repayments become difficult, it takes another facility from a different provider. Eventually several repayments are leaving the bank account at once, sometimes while new borrowing is being used to keep older borrowing current.

The result is less cash available for wages, stock, suppliers, tax, maintenance and growth. The business may still look busy from the outside, while the room to choose what happens next is getting thinner.

The pressure compounds

Repayment stacking

Multiple repayment dates can collide, leaving less of each sale available for the business itself.

Cost hidden in speed

When the urgent amount is the focus, fees, interest and total repayment can receive less attention than they deserve.

Personal exposure

Personal guarantees can move a large part of the risk from the company to the owner, sometimes without a full view of existing commitments.

Why businesses still use it

Alternative finance is not automatically bad finance. The investigation also shows why businesses use it: mainstream banks may reject firms that have real work, real customers and real growth potential but lack the balance sheet or security a bank requires. Higher pricing reflects higher risk. The danger is when the cost and the repayment structure stop matching the business’s ability to generate cash.

The wider signal

Responsible Finance reported more than 70 refinancing enquiries involving nearly 150 high-interest facilities worth £9 million; more than half involved stacked loans, including one case with ten. The British Business Bank has also reported that traditional bank loans make up only a small share of SME lending while challenger and alternative providers fill more of the gap.

At the same time, insolvencies have risen sharply since the pandemic. The investigation’s central question is therefore broader than whether a single lender or borrower behaved well: what happens when the market makes it easier to add debt than to understand the full cost of carrying it?

This page is an original Strata summary based on the supplied article content. It is not the Times article, is not financial advice, and does not endorse or criticise any specific lender. A Times subscription may be required to access the original report.