In a previous article, we discussed the pros and cons of using credit cards to fund your business. Surprisingly, we concluded that small business credit cards are a relatively inexpensive way to finance your business compared to other methods, and they can be used to fund startups and low-revenue businesses.
This article is specifically about credit card stacking, which allows you to tap into the power of multiple credit cards to finance your business. We researched the most popular small business credit cards in our ultimate guide here. Read our comparative review of the top three options, as well as our recommendations.
To learn more, we did our own independent research and interviewed Tom Gazaway, CEO of LenCred, a provider of credit card stacking and other small business loan products. We will walk you through the following:
- How does credit card stacking work?
- Are there advantages to going through a provider, or can you just apply for multiple credit cards on your own?
- What are the pros and cons of credit card stacking?
- What’s the cost of credit card stacking?
At a Glance: Credit Card Stacking
$25,000 to $150,000
Personal credit score
ideally above 680
Personal and business
income, business industry,
and business credit
are also reviewed
approx. 8-20 %
(may receive lower
promotional rates for
the first several months)
Service fee that
goes to the lender
8-15 % of your
How Does Credit Card Stacking Work?
Credit card stacking lets you use multiple credit cards to finance your business. Lenders don’t call credit card stacking by its name because most people have a negative perception about credit cards. Instead, you might see it referred to as an “unsecured business credit line for startups.” Whatever it’s called, the goal of lenders in this space is to get you the most credit at the best rate.
You may be wondering if there are advantages of going through a lender such as LenCred instead of applying for a bunch of credit cards on your own. The primary advantage is that lenders know which credit cards you’re most likely to qualify for based on your personal credit score, business industry, and other factors. There are over 1000 credit cards available in the US, and it could take months to research and compare each of them. Lenders have insider knowledge about all of the major credit card companies and banks, and they use that knowledge to help you get the highest credit limits and lowest rates possible.
The other reason for going through a lender is to protect your credit score. Every time you apply for a credit card, the bank that issues the card pulls your credit, which can harm your credit score. Stacking lenders know which credit reporting bureaus are used by which banks and submit applications strategically in a way that minimizes damage to your credit score. By reducing the number of inquiries on each credit report, lenders also increase the credit limits you can qualify for.
Here are the steps typically involved with credit card stacking:
- The lender pre-qualifies you based on your personal credit history, type of business, business and personal income, and business credit history.
- Based on those same factors, the lender determines which business and personal credit cards you would qualify for that have the highest credit limits and lowest rates.
- The lender submits applications for those credit cards on your behalf. Depending on how much financing you need, the lender may submit 10-15 applications on your behalf.
- You receive the cards that you qualify for and can use them as your business credit line. You will get a monthly statement for each credit card and must make a minimum payment for each. You’re welcome to make more than the minimum monthly payment, and any unpaid balance will accrue interest.
Pros and Cons of Credit Card Stacking
A lot of entrepreneurs are skeptical about using credit cards to fund their businesses. However, as Tom Gazaway points out, startups and low-revenue businesses don’t have a lot of financing options.
Using personal funds, such as retirement accounts or home equity, is high-risk. Banks prefer large deals with well established companies that have a proven track record. Options such as merchant cash advances can be extremely expensive and can drain a business of profits before it’s even off the ground. Credit cards give these types of businesses access to unsecured capital at a reasonable cost and on a fast turnaround (typically, 30 days or less).
Another advantage of credit cards is that they can serve as a safety net. You don’t have to use a credit card unless and until you need money, and you don’t have to pay interest on unused funds. As you pay down what you borrow, your amount of available credit increases. You can’t get this same level of convenience with a traditional business loan.
On the downside, it is hard to qualify for credit card financing. You need a great personal credit history. If you miss several payments or your business revenues significantly decline, lenders can freeze access to credit without warning. In addition, when you stack multiple credit cards, you have to keep track of multiple credit card statements so you don’t miss any payments.
Will I Qualify?
Credit cards are an unsecured form of financing. This is risky for the lender because if you can’t pay back what you borrow, there’s no collateral or business assets that can be used to recover the money (the lender does have the right to go after your personal assets because you must personally guarantee repayment, but this is harder to do than reclaiming collateral).
Consequently, most lenders offer credit card stacking only to borrowers with excellent personal credit. Ideally, says Tom Gazaway, you should have a credit score of at least 680. The stronger your credit, the better your rates and the larger your credit line will be.
Your credit quality is just as important as your numeric credit score. You may have a good score, but if you’ve regularly been late on credit card payments in the past, banks may hesitate to approve you for a credit card.
If you don’t have good credit, one tip from LenCred is to find a personal guarantor (business partner, family member, or friend) who has strong credit. This person promises to pay back the loan if you cannot. If you have a personal guarantor, their credit history will be checked instead of yours. In return, you can provide him or her with some percentage of sales or equity in your business.
Factors other than personal credit come into play. Even if you have great credit, the amount you qualify for will also depend on your business revenue. If you have a startup or your business isn’t generating a significant amount of revenue, the size of your credit line will depend on the income from your day job.
If you have an established business, the lender will also evaluate your business credit history. Having open liens or defaults in your business credit history will make it difficult to qualify.
Cost of Credit Card Stacking
The primary costs of credit card stacking are the interest rate and annual fees:
- The interest rate – Credit card APRs range from 10-24 % and have an average of around 15-16 %).
- Credit card annual fees – These are often waived during the first year but range from about $50-150 per year after that.
For the first 6-21 months, you will most likely pay a low or 0 % promotional interest rate. This depends on which cards make up your credit line, but most cards that LenCred works with offer some kind of introductory interest rate. If you draw on your credit line and pay back what you borrow in full within the promotional period, it’s like borrowing interest free.
Once the promotional period ends, any unpaid balances will be charged the regular APR. For example, say you make $3000 in purchases during a 0 % APR period, the regular APR on the card is 15 %, and you pay off $2300 during the promo period. Once the promo ends, you will owe $700 (the unpaid balance) plus $105 (the interest on the balance).
When paying off balances on multiple credit cards, it helps to have a strategy. One good option is to make the minimum monthly payment on all cards, and if you have money left over, put it towards the credit card with the highest interest rate.
Some cards charge annual fees. However, this is often waived for the first year. For rewards earning cards, the fee is typically balanced out by points/cash back you can earn by using the card.
There’s one additional fee for credit card stacking:
- Servicing fee charged by the provider, which typically amounts to 8-15 % of your credit line.
Most LenCred borrowers, says Tom Gazaway, fall on the low end of this range, and the larger your credit line, the lower the fee will be. For example, if your credit line is $100,000, the fee will be around $8,000-$9,000 on average.
Credit card stacking is still a relatively new, untested form of business financing. By stacking multiple credit cards, it’s possible for a startup or low-revenue business to get thousands of dollars in unsecured funding. It’s only open to those with great credit, however. It’s a good idea to add business credit cards to your arsenal of options when searching for business financing. To see our full comparison article, click below.