7 Things CFOs Should Know About Capital Stacking

Capital stacking is layered business credit: multiple business credit cards opened in a coordinated sequence, up to $200,000, at 0% interest for up to two years, with no financials required. The comparison a finance lead usually runs it against is a conventional term loan, and on a $150,000 borrow the term loan costs more in every version of the math our team has published on camera.

Here are the seven factors that actually decide it: total cost, repayment flexibility, what underwriting looks at, how the application affects credit, how you convert the lines to cash, what happens when the 0% period ends, and who carries the liability. Work through those seven and the answer for your situation stops being a matter of preference.

1. What does it cost compared with small business term loans?

Run $150,000 through all three structures at an average interest rate of about 9%.

A five-year term loan runs roughly $3,113 a month and costs nearly $37,000 in interest alone, plus a success fee of around 5%, or about $7,000. A ten-year term loan drops the payment to about $1,900 a month, but the interest climbs to nearly $78,000 over the life of the loan, with the same roughly $7,000 fee.

Capital stacking on the same $150,000 carries a minimum monthly payment of roughly $1,500, no interest during the 0% period, and a 9.9% success fee of about $9,900 paid on the back end after you receive the funding.

The 9.9% is the number that stops people. It is also the only number in that comparison where capital stacking is more expensive.

Read the transcript3 min read

I probably shouldn't be telling you this, but sometimes the numbers just don't make sense when it comes to borrowing money. So for example, I talk all the time about my favorite type of funding for business owners, which is capital stacking. However, one of the biggest hang-ups and why some people just don't move forward is they're just hung up on the 9.9% success fee.

It's paid on the back end after you receive the funding, but some people feel like those numbers just don't make sense. And then they tell me, I'm going to take out, I just want a traditional business term loan. That would make way more sense than paying that 9.9% success fee. So let's break down those numbers and see if it really does make sense. So just to keep the playing field even, in all these examples, I am going to be talking about taking out a $150,000 loan.

So let's talk about first a five-year term loan. Borrowing $150,000, your monthly payment is going to be roughly $3,113. And in those five years, you are going to end up paying nearly $37,000 in interest alone. And in case I forgot to mention it, we are going to be calculating these numbers based upon an average interest rate right now of about 9%.

And because borrowing money is never free, no matter what you're doing, there is a success fee on any type of term loan. Usually, it's right around 5%, which in this case would equate to about $7,000. So then let's talk about a longer term loan. Everyone loves those. A 10-year term, which is absolutely possible. Definitely lowers your monthly payment.

You'd be looking at about a $1,900 a month monthly payment. And in those 10 years, you are going to end up paying nearly $78,000 in interest alone. You're still going to have that roughly $7,000 success fee. And the thing to keep in mind with those term loans compared to capital stacking, with the term loans, you receive all that money at once. So you start paying on that from the beginning.

However, with capital stacking, you are determining what your payment is. You are determining the amount of debt you have. So let's say perhaps with capital stacking, you end up getting $200,000 in capital stacking, which is business credit. You certainly don't have to spend that all at once. Let's say you only spend $20,000 initially. You're only going to be paying on that much money.

But let's say you do spend the entire $150,000, just to keep it even with the other term loans there. Your minimum monthly payment on $150,000 is going to be roughly $1,500 a month. And as for interest, business credit with capital stacking comes at 0% for up to two years. So you will not be paying any interest. And everyone always says, well, what about after the two years?

You don't close the business cards. Instead, after those two years, you're going to put in place a balance transfer strategy. Does it take a little bit of work? Absolutely. But that's how you can extend that 0% period for years longer and not pay that interest. And the success fee on that $150,000 with capital stacking is going to be roughly $9,900.

Now, I'm no mathematician, but which one of those three options makes the most sense? Which one is going to be the most cost effective? So for those of you that have argued and not gone forward with capital stacking because of that fee, maybe seeing these numbers in a different light will help you make that decision. Additionally, one of the benefits of capital stacking versus taking out a term loan, you're actually helping yourself build business credit.

So that initial $150,000 that you borrowed could very quickly grow into several hundred thousand just by using it effectively. Unfortunately, a term loan doesn't quite have those same benefits. If you'd like to see more videos like this, comparing different funding options and seeing what's best for you, be sure to follow my account.

2. How flexible is the repayment, really?

This is the structural difference that does not show up in an APR comparison. With a term loan you receive all the money at once and start paying on all of it immediately. With capital stacking you decide how much of the approved amount you draw and when.

You're still going to have that roughly $7,000 success fee. And the thing to keep in mind with those term loans compared to capital stacking, with the term loans, you receive all that money at once. So you start paying on that from the beginning. However, with capital stacking, you are determining what your payment is. You are determining the amount of debt you have.

If you are approved for $200,000 and spend $20,000, you are paying on $20,000. There is no requirement to use it inside a set window. You can hold the lines and deploy them project by project.

The minimum payment math is simple: $100 per month for every $10,000 you have spent. A $100,000 balance carries a $1,000 minimum monthly payment. Our team does no other type of funding with a minimum payment that low.

3. What does underwriting actually look at?

No financials. No revenue history. No collateral. Capital stacking is unsecured funding, which means the qualification rests on a strong personal credit profile, generally 680 or higher.

The age of the LLC does not drive the outcome. What drives it is your highest existing personal credit card limit. A $5,000 personal high limit typically translates to $10,000 to $15,000 on a single business card, and the amounts get large because the cards get stacked. We have seen $60,000 limits on one business credit card.

If your personal profile is not there yet, two paths exist. The offer may come back as a business and personal combination, where the personal portion also comes at 0% and often carries a longer 0% window. Or you can use a credit partner, meaning a spouse, business partner, or relative with strong personal credit, with the funding issued in the name of your LLC.

4. How fast is approval, and what does applying do to your credit?

The application takes no more than 10 seconds and asks for name, phone number, address, and social. No EIN, no business documents. It is a soft pull only, so finding out what you qualify for does not put a hard inquiry on your report.

That changes the sequencing question. Because there is no credit cost to checking, there is no reason to wait until you have a deal under contract. Investors who reverse that order routinely discover, too late, that they do not qualify for the amount they assumed.

On real timelines: once you pull the trigger, plan on at least 30 days to get the capital stacking approved, liquidated, and sitting in your bank account. Fast loan approval is real here, but the cash does not appear the same week.

5. How do you turn credit lines into usable cash?

Business credit arrives as credit cards, and a lot of growth capital needs to be cash. Do not take a bank cash advance. That triggers a large fee and pushes the rate from 0% to a cash advance rate that can run 20% to 25%.

Two workable routes. Plastiq will pay an invoice off the card and run it as a purchase, keeping the 0% intact, at a charge of around 2.5%. For real estate, we work with an attorney who liquidates up to 85% of the card's value into an escrow account, still processed as a purchase, at a cost of about 5%. We also work with a liquidation partner that can convert up to 90% of the card's value and wire it to escrow or to your bank account.

Many of these cards are rewards cards. Liquidate $100,000 and the points you earn, converted to cash, can come close to reimbursing the 2.5% or 5% you paid to liquidate.

6. What happens when the 0% period ends?

The worst move is closing the cards. During the promo period, make the minimum payments on time and keep capital in the business. As the period winds down, make a large payment to drive the balance down or off.

If a balance remains, you have two options. Transfer it to another 0% card, or call the issuer and ask them to extend a 0% balance transfer period. Every card has a different intro window, some 12 months, some 15, some 18, so you work the one expiring first and leapfrog the balances forward. Done consistently, that extends the 0% period for years. You can also come back for another round of capital stacking and transfer into the new lines.

Read the transcript2 min read

What should you do when the introductory 0% period is ending on those business credit cards that you got with capital stacking? The worst thing you could do is close those cards when that 0% ends. The benefit of business credit is that it does not show up on your personal credit report, kind of like invisible debt, but you still have to pay it. It does come at 0% interest, sometimes up to two years.

However, many people panic, and they don't even take the funding because they think, oh, well, when that period ends, what am I going to do? Relax. There is a clear solution. So in many cases, if you've taken a round, you've done a round of capital stacking, you've gotten that business credit, when that 0% period is ending, if you've used it effectively, you can come back for another round of capital stacking and take advantage of another round of 0% and do balance transfers.

Or there is another way. You can actually put to use a great balance transfer strategy. So every card will have a different intro period. Some might be 12 months, some might be 15, some might be 18. What you want to do is the card that's going to, I don't want to say expire, when that 0% period is ending first. You want to focus on that card. You want to use it, but you want to make sure you pay it down or pay it off by the time that 0% period is ending.

As it's drawn to a close, you want to call that card issuer. So, hey, Chase, I've really loved using your card. I'd like to do a large balance transfer. Do you think you could spot me and extend a 0% balance transfer period for me? And so let's say they give you another 15 months at 0%. You then transfer the next balance over and you keep doing this repeatedly.

It's kind of like a game of leapfrog, but this is how you can extend that 0% period for several years. And the worst thing you could do is close those cards because you've been building this business credit history, which in turn is going to help you get more business credit. Because the more you use this business credit, you pay it down, pay it off, you'll be amazed how many new 0% offers and credit line increases you'll be getting.

I like to think of it as the gift that just keeps on giving.

7. Who carries the liability, and what does it build?

Business credit is attached to your EIN and does not show up on your personal credit report, so drawing on it does not inflate your personal debt load. It is still personally guaranteed. There is no collateral behind it, so if you stop paying, it will eventually reach your personal credit.

The upside a term loan does not offer: usage builds business credit history. Rack it up, pay it down, pay it off quickly, and the credit line increases and new 0% offers follow. An initial $150,000 can grow into several hundred thousand in available capacity. Some clients working this for two and three years are at $600,000 to $700,000 in business credit.

One caution on doing it yourself. The information is public, but the sequencing matters, and applications fired off in the wrong order produce hard inquiries and denials that can wipe out an existing offer. Clients working with our team typically get three to eight times what they would get on their own.

The takeaways

• On $150,000, a five-year term loan costs nearly $37,000 in interest and a ten-year costs nearly $78,000. Capital stacking costs a 9.9% success fee, about $9,900, and no interest during the 0% period.
• You control the draw and the payment. Minimum payments run $100 per month per $10,000 spent, with no deadline to use the funds.
• Qualification is a strong personal credit profile, generally 680 or higher. No financials, no collateral, and a brand new LLC is fine.
• Checking what you qualify for is a soft pull and takes about 10 seconds. Budget at least 30 days from pulling the trigger to cash in the bank.
• Liquidate through Plastiq at around 2.5% or an escrow route at around 5%. Never take a bank cash advance.
• Keep the cards open when the 0% ends and run a balance transfer strategy.
• Business credit does not appear on your personal report, but it is personally guaranteed.

To find out what you qualify for without a hard inquiry, get in touch.