Many startups die, not because the product is weak or execution is woeful, but due to a lack of good old cash. Injecting fresh cash into your fledgling business can make the difference between skyrocketing growth and total collapse.
There are potentially dozens of ways you can fund your startup. The keyword though is ‘potentially’. For a startup, practical funding options are much more limited than those available to a well-established business. Credit card stacking could be just the lifeline your startup needs.
It is not something many entrepreneurs would immediately think of as a funding option but it’s one where you have a fairly good shot at quickly securing $50,000 or more. Let’s get right to it.
What Is Credit Card Stacking?
Credit card stacking is a form of unsecured financing that involves applying for multiple personal or business credit cards within a short period–typically hours or days. The aim is to access a larger unsecured line of credit than would have been available to you if you applied for just one card.
Once your application is approved, you can draw on the stack of cards as an alternate source of working capital for your startup. Ordinarily, you would get dinged if you applied for multiple credit cards. But in this case, applying for the cards within the same day circumvents this hurdle.
The primary advantages of credit card stacking:
- You do not need collateral. Credit card stacking is unsecured financing.
- Low business revenue is not an impediment. Qualifying for the card is dependent on your personal credit score and not how well you build your business credit. Low revenues will not disqualify you as they would in traditional business credit.
- Quick. You can access fresh capital fast– as little as seven to ten days.
- Promotional interest-free period. Many credit cards offer an interest-free window that could last as long as 18 months.
- Annual fee waiver. Some card annual fees may be waived for the first year.
You can do the credit card stacking yourself or use a credit card stacking service provider. Either way, understanding how the process works is important.
How to Use Credit Card Stacking to Get Funding
The combined limit of the cards is the maximum amount of cash available to your startup as an unsecured line of credit.
So, for instance, if you apply for 8 cards with a $5,000 credit line each, you have $40,000. If you apply for 5 cards with a credit line of $10,000 each, your combined limit is $50,000.
It is not unusual for small business owners to qualify for up to $150,000 worth of card stacking credit lines within 30 days. After just a year, this could go as high as hundreds of thousands of dollars.
According to Jonathan Svensson, Co-Founder of Almvest, “To defer or avoid paying interest on the cards, prioritize applying for cards that have a 0% introductory annual percentage rate (APR).”
Also, where possible, apply for a business credit card that doesn’t report to the consumer credit bureaus. Unlike personal cards, these will not affect your credit score. You can max out the card without being penalized as long as you are making the minimum monthly payment.
Keep in mind that if you get a business credit card that does report to the consumer credit bureaus, your maxed out credit limit will affect your personal credit scores. And if your business hasn’t built any credit, then qualifying for such a card will require that you sign a personal guarantee.
Who Credit Card Stacking Is Right For
Loan stacking could be just what you need if you are in any one of the following circumstances:
A Growing Small Business
Your new, growing business that is seeking quickly accessible new capital could do with credit card stacking. It can be especially useful if your business does not qualify for conventional business loan options. Such as a working capital loan, a business line of credit, or an SBA loan.
A Low-Revenue Business
Credit card stacking would be useful for your low-revenue business that needs to bridge the gap between costs and income, cover inventory expenses or take care of general business purchases to manage cash flow.
Lenders gauge your personal credit score to determine whether you qualify for multiple loans. Ergo, low annual revenues will not be a hurdle as it would be with conventional business credit lines.
Need for Quick Cash
Life happens. And when it does, it could hand us unexpected situations. Think about the global upheaval caused by the COVID-19 pandemic. Credit card stacking can plug this need for quick cash and ensure that your journey to becoming a millionaire stays on course.
You can get your cards within seven to ten business days. Access to such cash can make a difference during stormy times.
Steps Involved in Credit Card Stacking
There are four major steps to the process.
Depending on whether you are applying for business or personal credit cards, a credit card provider will evaluate your application based on your personal credit history, business credit history, your income, business income, and the type of business.
Because credit card stacking involves an unsecured line of credit, it is considered a high-risk debt. Ergo, most credit card issuers, financial institutions, and other lenders will require a credit score of at least 680 for one to be eligible though 720 or higher is best.
The higher your score, the larger the credit limit and the better the interest rates you will get. Digital Honey has some useful tips on improving your credit score and bettering your financial health overall.
In case your credit score does not measure up, look for a personal guarantor willing to put their personal credit score on the line and commit to paying the lender if you fail to do so. The personal guarantor would usually be a family member, friend, or business partner with strong credit.
2. Shop for the Most Suitable Credit Cards
The success of your credit card stack is dependent on the cards it’s comprised of. Choose cards based on your startup money goals as well as the perks or cashback rewards you would prefer. When identifying the best credit cards, keep an eye on costs such as the APR and annual fee.
3. Apply for the Cards
By this point, you should have narrowed it down to the set of cards you want. This is important because you don’t want to apply for cards at random. Too many hard credit checks may negatively impact your credit report.
Keep card applications at just the ones you need by only applying for cards that you have high chances of qualifying for. The best credit card providers allow you to apply online and get a decision in a matter of minutes.
4. Use the Cards
Once the credit card company reviews and approves your application, you will get the card in seven to ten days. Use the stack of cards to fund your startup.
Review your monthly statement credit and make the minimum payment for each card. Unpaid balances will attract interest over the next billing cycle unless you are within a 0% APR promotional period.
Credit Card Stacking Costs
Credit card stacking is a debt so there are costs.
Expect to pay an annual fee of anywhere between $50 and $150 but this could go as high as $500 or more. Card fees may be waived for the first year.
This typically ranges between 11% and 25% but averages around 15-16%.
Some credit cards have an introductory 0% interest period for the first six to 18 months. If you borrow and repay within this period, you will effectively enjoy an interest-free loan. When this promotional window lapses, you will owe interest on any unpaid balances.
You could do the loan stacking yourself or use a credit card stacking service. A card stacking service could save you the time and effort of going through the process on your own. If you opt to use a credit stacking service provider, there will be a servicing fee of 8-15% of your credit card limit.
Credit Card Stack Management Tips
Ultimately, how well the card stack serves you will depend on how well you manage your balances.
Except within the promotional 0% APR period, you will accrue interest on any unpaid balances until they are paid off. Work with a strategy to minimize your interest costs. Start by paying off the monthly minimum for each card. If any cash remains, apply it to the card with the highest interest rate.
If you want to carry the balance beyond a promotional interest-free period, you should consider going for a term loan instead.
An SBA loan or a traditional bank loan would be perfect for your startup, but your startup may not qualify for one.
Credit card stacking is a viable unsecured alternative for startup cash. You have likely read or heard about successful businesses that were initially funded by the entrepreneur maxing out their credit card or using loan stacking.
That said, card stacking can inadvertently become a path to spiraling credit card debt and even bankruptcy.
Every startup’s situation, money, and growth prospects are different. Taking time to research and determine the cards that are best suited to your business is vital to minimizing the risk of default. Weigh your risk tolerance and identify the card stack that will be a money asset to your business.