How Does a Personal Loan Work?
Personal loans are straightforward and are a great way to start your business. At the most basic premise, they are simply a borrowed sum of money that the borrower then pays back with interest. When you apply for your personal loan, you typically need to specify the amount of money you wish to borrow.
Personal loans can range anywhere from $1,000 to $100,000, depending on the lender. Once you apply and are approved for the loan, you’ll receive the amount of money you were approved for in a lump sum, minus any origination fees that some lenders may charge. Then, you pay back that money in installments which are set by the specific terms of your loan.
There are very few restrictions on where you can or can’t spend the money.
When taking out a personal loan, the interest rate will usually be determined by a combination of things like your financial history, income, debt, and your credit score. The better your credit score, the better chance you must receive a lower interest rate on your loan. The higher the interest rate, the more money you will ultimately pay over the life of your loan.
Most personal loans are fixed rate loans, meaning your rate and monthly payment stay the same or are “fixed” for the life of the loan. Fixed rate loans can make sense if you are looking for something with consistent payments each month. A fixed rate loan is also worth considering if you are concerned about rising interest rates on longer-term loans. If you have a 700 FICO and $50,000 or move in verifiable income you can get access to $100,000 at 8% over 5 years to open a business, you have always been dreaming of.
How Does Credit Card Stacking or FICO Lending Work?
With credit card stacking, instead of having one unsecured business line of credit that you can use as a way to start your business, you use a “stack” of credit cards to accomplish the same goal. The combined limits of your credit card stack represent your small business unsecured line of credit, which can be used repeatedly.
Because credit card stacking is an unsecured business line of credit, lenders consider this type of lending higher risk. Consequently, most credit card providers prefer to offer financing to business owners with good personal credit scores of 680+ (check your score for free).
Unsecured forms of financing don’t require any collateral—you’re not required to pledge any specific assets as collateral, like your business equipment, home, or retirement accounts. However, you will be required to provide a personal guarantee that you’ll pay if the business doesn’t, meaning there is some risk to your personal assets.
Some additional key things to know about how credit card stacking works are:
- Your Limit Is Revolving: Anytime you draw on your credit limit, you must repay your balance on a monthly basis. Once you repay the amount you borrowed, it will be available to use again.
- You’ll Accrue Interest on Unpaid Balances: If there is a remaining balance on your monthly statement, it will accrue interest until it has been fully paid off. If you need to carry a balance beyond any interest-free promotional period, a term loan is a better option.
- No Collateral Is Required: With an unsecured credit card, like the Chase Ink Business CashSM Credit Card, or Best Small Business Credit Cards 2019, you won’t be asked to pledge either specific business assets or personal assets as collateral.
- You’ll Need to Provide a Personal Guarantee: A personal guarantee gives your lender the right to pursue your personal assets if your business defaults on a small business credit card or loan.
At BitX Funding we will submit the applications for you in aggregate and can help minimize multiple hard credit pulls on your personal credit report. However, we will charge you an annual servicing fee of 10 percent while focusing on 0% credit cards.
We have great success getting startup businesses access to $100K in 0% credit cards while stacking together personal term loans of $100K equaling $200K of available funds to launch your next venture!