While researching many different business financing options to understand the challenges small business owners face when getting capital, we stumbled upon “Credit Card Stacking”. Credit card stacking is the strategy of applying for multiple smaller lines of credit/credit cards in a specific order to access a larger unsecured line of credit than any one business credit card could offer. We spent some time looking into this option and here is what we found.
How Credit Card Stacking Works
If a company advertises that they can get your small business an unsecured line of credit of up to $150,000 with low interest rates, it’s likely they are a “Credit Card Stacking” company. Just think about it for a moment. If you were a lender, would you loan a startup that kind of money without collateral? So how do the credit card stacking companies get you an unsecured line of credit of say $100,000? Here is how it works:
- They look at your business credit score, industry, and location to identify banks that will work with you.
- They submit business and personal credit card applications to the banks for you. It’s not uncommon for them to submit 7-15 credit card applications so your total credit limit will reach your funding goal. In other words, they stack up multiple credit cards to reach your desired loan amount.
- Credit card stackers will only apply for cards that you are likely to qualify for and that have the lowest APR (most likely 0% Intro APR for the first 6-18 months). Their pitch is that it’s hard for you to find the best credit cards yourself, but they are experts in business/personal credit cards. They will also try to apply for business credit cards over personal credit cards because most business credit cards don’t show up on your personal credit reports as long as you make the payments on time. Even if you have very high credit utilization on your business credit cards, if those business credit card issuers don’t report ongoing payment history to the consumer credit bureaus, your personal credit scores won’t be affected. (Keep in mind that if you default or miss payments on a business credit card, the issuer may have a “negatives only” policy in reporting to the bureaus and your credit could be impacted in this case.)
- Once the credit cards are approved and issued, you can use them as the business line of credit. Your intro APR will mostly likely to be low (or 0%) so you are paying very low rates for the first 6-18 months.
- If you need to get cash out of the credit line, they will also teach you how to do that without incurring a lot of cash advance fees. Usually, this is achieved through credit cards from credit unions where fees are low for members.
Benefits of Credit Card Stacking
By strategically submitting your applications, credit card stacking firms can safeguard your personal credit scores by decreasing the quantity of hard credit pulls on your credit record. In addition, credit card stacking can help you improve your credit while increasing your chances of larger funding in the future. It also decreases the chances of getting denied because it’s tailored to your specific needs and qualifications.
Costs of Credit Card Stacking
The above all sounds great, but like all financing options, it comes with some downsides. Stackers charge a fee — often hefty — to help you get approved. We’ve seen that fee hover around 9-11% of the approved amount for the credit card stacking companies to apply for credit cards for you. In other words, if you are applying for a $50,000 line, you will likely have to pay $4,500 to the credit card stacking company.
You’re paying for expertise and for a quick fix to your cash flow problem, but it can come at a high price tag. For many business owners, cash flow issues are life and death for their business, so they’re willing to pay that servicing fee knowing there’s other accounts receivable coming their way and they just need to ride out the short-term cash crunch.
In addition to the fees, another impact of credit card stacking is that it will put a lot of inquiries on your credit reports. Even with good credit, you will experience a drop of your credit scores for the next six months. The credit card companies may or may not tell you about this, but it’s very important for you to understand that you might not be able to obtain further credit in the next six months due to the large number of inquiries.
What Are Credit Card Stacking Companies?
There are companies that will help your startup identify and apply for the best credit cards and then submit your applications on your behalf. These are known as credit card stacking companies or stacking lenders. A credit card stacking company can assist entrepreneurs with identifying the best credit cards for your business and narrow down the options, even though you can do it on your own.
When is Credit Card Stacking a Good Idea?
Commercial owners that don’t qualify for SBA loans, business lines of credit, or working capital loans can benefit from credit card stacking. Additionally, small companies or low-revenue businesses that have yet to accumulate assets and are unable to get a traditional small business loan may want to consider this option.
It is also a good idea because it’s a good way to get money quickly, since you can usually get approved and get your cards within seven to ten business days. Best of all, it is completely legal but we certainly caution that if you’re utilizing a credit card stacking company that you find one that is reputable.
How Nav Can Help
So is credit card stacking worth it? For business owners who are financially savvy and who really know what they are doing, this product can still be very helpful and can potentially be a good alternative to a short term working capital loan.
But if you are just starting out or have an excellent personal credit score (which will make it easier to apply confidently for any credit cards you like), a $4,500 fee may not be a wise use of cash. We suggest doing your homework and signing up for Nav so you can use tools like Nav’s MatchFactor to sort and rank business credit cards from all the major issuers based on your credit profile so you can apply with confidence.