Credit Card Stacking: An Unsecured Business Line of Credit

What is credit card stacking?

Credit cards are a great inexpensive way to finance a startup or low-revenue business when compared to other means of finance such as traditional bank loans, SBA loans and etc.

In credit card stacking, rather than having only one credit card, you have a stack of credit cards that acts as your line of credit. Lenders who are specialized in the concept will help you get the highest credit limit for the lowest rates possible.

How does credit card stacking work?

Since the majority of business owners have a negative attitude towards credit card financing, lenders often refer to it as an “unsecured business line of credit” to draw in customers. In a way, that term is pretty accurate since credit card stacking doesn’t require any collateral from you.

Now you may be wondering why you would even need a lender when you can apply for a bunch of credit cards yourself. I hate to break it to you but there are over 7,000 banks and 1,000 unique credit cards in the U.S. alone.

It would take you months or maybe even a year to compare each and every one of them to find out the ones that suit your business the most. This is where lenders come into play.

Using the extensive knowledge they have on banks and credit card companies, lenders are able to decide which credit cards you are most likely to qualify for by looking at your personal and business credit scores, the industry your business is in, your personal and business revenue, and various other factors.

That’s the primary advantage of hiring a stacking lender.

They protect your personal credit score as well. Each time you apply for a credit card, the bank or company that issues the card will pull your credit report and credit score. The more times your credit is checked, the more it diminishes.

Stacking lenders however, know which credit reporting agencies are used by which banks and credit card companies. This enables them to submit your applications in a strategical way that reduces the number of inquiries on your credit score, thereby minimizing the damage done to it.

Steps involved in credit card stacking

First, the lender takes into account factors such as your personal and business credit score, personal and business revenue, the industry your business is in, and etc.

Next, the lender will hand-pick the personal and business credit cards you are most likely to qualify for, with high credit limits.

Personal credit cards are much easier to acquire and are cost effective than business credit cards. Some even have credit limits that are on par or higher than mid-range business credit cards.

However, if a lender had to choose between a business and personal credit card, they would without a doubt choose the business credit card. Why? Because they don’t show up in your personal credit report no matter how much credit you utilize on a frequent basis.

Next, the lender will submit applications for the selected personal and business credit cards on your behalf. It’s not rare for them to submit up to 15 applications in order to reach your funding goals.

Once the requested credit cards are approved and issued, you can immediately start using them as a line of credit. Credit card stacking lenders often pick credit cards that have a low or 0% intro APR during the first 6-18 months.

You would then receive a monthly statement for each credit card you own. A great way to maintain the unpaid balances of all your credit cards is to pay the minimum amount possible for each card.

Pros of credit card stacking

Most entrepreneurs and small business owners are dubious about using credit cards to fund their business. But if you think about it, there aren’t many financing options available for startups and low-revenue businesses to begin with.

All traditional loans require large collateral for new and small businesses. Crowdfunding would work but it will take you a lot of time, money and effort to build a compelling and trustworthy campaign. Invoice financing and invoice factoring would work as well but will require invoices from well-known customers, the kind a new business won’t get.

Credit cards, on the other hand, give access to unsecured capital at a reasonable cost. The best thing is, a credit card application takes less than a month to be processed and approved.

Rather than just a source of finance, you could use credit cards to strategically increase your personal and business credit scores by withdrawing cash at a medium-pace and making payments on time.

Some credit cards even offer rewards and perks such as money-back rewards for office purchases, discounted gas and etc.

Another huge advantage of using credit cards is the convenience it gives you. There is no interest on unused funds, that means it’s ok to not use the cards until you really need money.

And if you have cards with 0% intro APR, you won’t have to pay interest for a certain number of months even if you decide to withdraw the maximum amount of credit available.

As you pay off your debts, the credit limit will automatically reimburse. So if this is not convenient enough for you, I don’t know what is.

Cons of credit card stacking

You need a good personal credit score to be qualified for high credit limits. If you have a very low credit score, not even the best stacking lender can help you.

Credit card interest rates tend to be much higher than other forms of finance due to its unsecured nature and convenience. Therefore, taking on too much credit card debt may shorten the lifespan of your business.

It is said that on average, for every $1,000 of credit card debt a small business or startup acquires, the chance of future survival fall by more than 2 percent. This goes to show just how high credit card interest rates are.

If you fail to make the payments on time, not only will your personal or business credit score decrease but the banks or companies that issued the cards may freeze access to further credit without any warning. This may happen when there is a sudden decrease in your business’s revenue as well.

Most business credit cards won’t affect your personal credit score but if they do, late payments may hinder your ability to take on traditional loans once the business grows.

Finally, having multiple credit cards require you to keep track of multiple monthly statements which can be a real pain.

What does it take to be qualified for credit card stacking?

Credit cards are an unsecured business line of credit, meaning, there is no collateral involved. So if you are unable to pay back the amount borrowed, the bank won’t have anything to claim as their own.

Due to this, banks and credit card issuing companies only issue credit cards to people with a credit score of at least 680. Basically, the higher your credit score, the higher your credit limit and lower the interest rate will be.

Banks may still refuse to approve your credit card if you have been late on several credit card payments and taken credit far too frequently.

If you don’t have a good personal credit score one solution is to get a personal guarantor. This can be anyone from a family member and friend to an employer who has enough credit score to meet the credit card issuer’s requirements.

In this case, the bank will take into account your guarantor’s credit score instead of your own and will hold him legally accountable for paying off the borrowed amount in-full if you are not able to.

Even if the bank approves your credit card, its credit limit will depend entirely on the revenue of your business. If your business is generating only a small amount of money, the bank will look at your personal income instead.

Costs associated with credit card stacking

The two main costs associated with credit card stacking are interest rates and annual fees.

If you go through a reputable stacking lender, the credit cards you receive will mostly likely have a low or 0% APR during the first 6-18 months. This is often known as the promotional period.

It doesn’t matter how much credit you utilize, if you pay the amount back in full within the promotional period, you will be charged no interest whatsoever. So it’s basically like getting the money interest free.

Once the promo period ends, you will be charged the regular APR for any unpaid balances. The average APR of a business credit card is around 15%-16%.

If you have unpaid balances on multiple cards, the best strategy is to pay the minimum amount possible for all the cards. If you have extra money, put it to the credit card with the highest interest rate.

Some credit cards require you to pay an annual fee of up to $150. This amount is often ignored during the first year. For cash or rewards-back credit cards, the annual fee is often balanced out by the rewards or cash backs you earn throughout the year.

In case a lender is involved, you will have to pay an addition fee called the servicing fee, which typically amounts to 9%-15% of your funding goal. The higher your combined credit limit, the lower the servicing fee will be.

For example, if your combined credit limit is $100,000, you would have to pay $10,000 to the lender.

It’s like paying someone $10,000 just for applying for some credit cards on your behalf. Stacking lenders are more experienced and will get you the best cards available but their service is still too expensive.

The worst part is, once you have signed the contract and once the lender starts to submit the applications, you can’t back out from the deal. You will be legally liable to pay to pay the servicing fee even if the results are bad.

If you refuse to pay, the lender will most likely send the contract to collections after 30 days.

Conclusion

Credit card stacking is still in the early stages and hasn’t got much traction over the past few years. However, it is possible for a startup or low-revenue business to raise hundreds of thousands of dollars by applying for multiple business or personal credit cards.

I wouldn’t recommend taking on credit card stacking yourself unless you are financially experienced and really know what you are doing.

Why? Because stacking lenders know how to strategically submit credit card applications in a way that minimizes the number of inquiries on your personal credit score. They also know which banks and companies issue credit cards with a low or 0% intro APR.

The biggest risk is that you would have to pay both the amount you borrowed and the servicing fee that’s charged by the stacking lender even if your business fails.

If I were you, I would treat credit card stacking as a viable option but would still seek funds from family, friends or business partners before having to rely on it.

Do you have any positive or negative experiences in using credit cards to finance your business? Let me know in the comments section below.