Sole Proprietorship VS LLC: How to Choose Your Entity Wisely

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Sole proprietorship vs LLC

Here, we teach people how to build business credit. And, establishing your entity is a super important step in the process — early on, the two most common choices are sole proprietor or LLC. 

If you’re running a business as a sole proprietor, and considering an upgrade to LLC,  you might already know that you can get some business credit even without registering as an LLC or corporation…But if you’re looking to take your business to the next level and secure larger no-doc business lines of credit (think 25k, 50k, 100k), you might find it challenging without a registered corporate entity.

Banks and lenders tend to prefer working with LLCs or corporations because they offer more protection and credibility. So, I highly recommend considering forming an LLC over a sole proprietorship if you’re serious about obtaining substantial business credit.

Don’t get me wrong — you can still apply for business credit cards as a sole proprietor. But, a registered LLC or corporation can make it easier to secure other types of financing and help you build a stronger credit profile for your business. 

In this article, we’ll dive deeper into the differences between sole proprietorship and LLC, and explore their pros and cons, especially when it comes to business credit and financing options.

Here’s what we’ll cover: 

Now, let’s get going! 

Are You Sure You Only Want to Look at Two Options? 

Before we get too deep into the pros and cons of LLCs vs sole proprietorships, let’s take a quick look at some more entity types — I want to cover it all and give you everything you need to know. After all, it’s crucial to choose the right structure for your needs. 

You might also like: What’s the Best Payment Processor for a Small Business? Really

Sole Proprietorship

A sole proprietorship is the simplest type of business structure and is owned by one person. The owner has complete control over the business and is personally liable for its debts and legal issues. Sole proprietorships are not taxed as separate entities from the owner, meaning that the owner reports the business income on their individual tax returns.

Limited Liability Company (LLC)

A limited liability company (LLC) is a type of business entity that gives the owners (“members”) “limited liability protection.” This is a swanky way to say that the member’s personal assets are separate from the company’s assets, and their personal liability is limited to the amount of money they’ve invested in the company. 

LLCs can have one (“single-member”) or more (“multi-member”) members, and they can be taxed as either a sole proprietorship, partnership, S corporation, or C corporation, depending on how the members choose to be taxed.

S Corporation

An S corporation is another type of entity that you may want to consider — it’s a type of corporation that is taxed differently than a traditional corporation (C corporation). An S corporation’s profits and losses are “passed through” to its shareholders, who report the income on their individual tax returns. 

This means that S corporations avoid double taxation. To qualify as an S corporation, a business must meet certain requirements set by the IRS.

C Corporation

Next, you have a C corporation — a traditional corporation that is taxed as a separate entity from its owners (“shareholders”); this means that the corporation pays taxes on its profits, and the shareholders pay taxes on the dividends they receive from the corporation. 

C corporations offer limited liability protection for their shareholders, but they are subject to double taxation.

Partnership Options

At this stage, it’s also important to look at the two types of partnerships: 

General partnerships are a type of business entity where two or more people share the management and ownership and management of the company. The partners share the profits and losses of the business and are personally liable for any debts or legal issues that the business incurs.

A general partnership is typically not taxed as a separate entity from the partners, meaning that the partners report the business income on their individual tax returns.

Limited partnerships are similar to general partnerships but with two types of partners: general and limited partners. General partners have control over the day-to-day business operations and are personally liable for any business debts and legal issues. Limited partners, on the other hand, have limited liability and are not involved in the management of the business.

Limited partnerships are typically taxed as pass-through entities.

Sole Proprietorship vs Single-Member LLC

A single-member LLC is not the same as a sole proprietorship. In terms of liability protection, taxation, ease of formation and maintenance, and flexibility in management, there are considerable differences between sole proprietorships and limited liability companies (LLCs):

First of all, sole proprietorships provide no liability protection for their owners — basically, he owner’s personal assets are at risk if the business is sued or incurs debt. In contrast, LLCs offer “limited liability protection” to their owners (their personal assets are generally protected from the company’s debts and legal judgments).

Next, sole proprietorships are typically taxed as pass-through entities, which means that the business’s profits and losses are reported on the owner’s personal tax return. LLCs can also be taxed as pass-through entities, but they provide the option to be taxed as a corporation (this can be advantageous for LLCs that want to cash in on lower corporate tax rates or retain earnings in the business without paying personal income taxes on them).

And, sole proprietorships are the easiest and cheapest business entities to set up…in most states, they require no formal paperwork or registration. Now, while LLCs require more paperwork and filing fees to establish, they offer formal structure and protection. Both types of businesses require ongoing maintenance, such as keeping accurate financial records and filing tax returns, but LLCs typically have more stringent compliance requirements.

Finally, sole proprietors have complete control over the management of their businesses…but (big but), this also means that they have full responsibility for all aspects of the business. LLCs are more flexible in terms of management structure — they can be managed either by the members or by outside “managers.” LLCs can also have varying degrees of ownership and voting rights among members, which allows for more customized ownership structures.

While both sole proprietorships and LLCs offer benefits and drawbacks, LLCs typically offer more liability protection, tax flexibility, and management structure options, but require more paperwork and ongoing maintenance. 

Here’s How Sole Proprietorships & LLCs Pay Taxes

Sole proprietors report their business income and expenses on their personal tax returns using Schedule C (Form 1040). The net income from the business is then subject to self-employment taxes, which include Social Security and Medicare taxes. Self-employment taxes are calculated on Schedule SE (Form 1040) and are owed in addition to income tax. 

→ Sole proprietors are also responsible for paying estimated taxes quarterly throughout the year.

LLCs have more flexibility in how they pay taxes — by default, single-member LLCs are taxed as sole proprietorships and report their business income and expenses on the same Schedule C as a sole proprietor (Form 1040). 

Multi-member LLCs are taxed as partnerships and file Form 1065 to report their business income and expenses annually. But, LLCs can also choose to be taxed as S corporations or C corporations by filing Form 8832 or Form 2553, respectively.

Comparison of Tax Rates & Deductions

Sole proprietors and LLCs taxed as sole proprietorships pay income tax at their individual tax rates, which range from 10% to 37% depending on their taxable income. They are also subject to self-employment tax, which is currently 15.3%.

LLCs taxed as partnerships, S corporations, or C corporations are not subject to self-employment tax — Instead, the owners or shareholders pay income tax only on their share of the profits. 

Both LLCs and sole proprietors can deduct typical business expenses, such as rent, supplies, and equipment, to reduce their taxable income. 

Can an LLC Be Used to Reduce Taxes?

You can use an LLC to reduce taxes in a couple of ways: 

  1. Elect to be taxed as an S corporation — this allows the owners to pay themselves a reasonable salary and take the remaining profits as distributions. This can reduce self-employment tax, as only the salary is subject to Social Security and Medicare taxes.
  2. Take advantage of deductions and credits — LLCs can deduct business expenses, such as rent, supplies, and equipment, as well as contributions to retirement plans and health insurance premiums. They may also be eligible for tax credits, such as the Research Tax Credit or the Small Business Health Care Tax Credit.

Note that sole proprietorships are eligible for many of the same write-offs and credits as LLCs. So, how can you choose between them? 

How to Choose Between a Sole Proprietorship and an LLC

Here are some factors to consider when deciding whether to choose a sole proprietorship or an LLC:

Sole Proprietorship:

  • Simple to set up and maintain — A sole proprietorship requires minimal paperwork and legal formalities, making it easy and affordable to start and operate. 
  • Complete control — As a sole proprietor, you have complete control over your business decisions and operations.
  • Tax benefits — As a sole proprietor, you report your business income and expenses on your personal tax return, which can simplify tax preparation and potentially lower your tax burden.

Limited Liability Company (LLC):

  • Limited liability protection — An LLC provides limited liability protection to its owners, meaning that the owners are not personally responsible for the company’s debts and liabilities. 
  • Credibility and professionalism — An LLC is often seen as a more credible and professional business entity than a sole proprietorship, which can be an advantage when dealing with customers, vendors, and investors. 
  • Flexibility in taxation — LLCs have the option to be taxed as a partnership, an S corporation, or a C corporation, providing flexibility in tax planning and potentially reducing overall tax liability. 

In general, if you’re a small business owner with low risk and relatively simple operations, a sole proprietorship can be a decent choice. However, if you are concerned about personal liability or are looking to grow your business and establish credibility, an LLC may be a better option. It’s always a good idea to consult with a lawyer or accountant to determine the best business structure for your specific needs and circumstances.

With that said, I know that you can get business credit with a sole prop but you can get serious no-doc business lines of credit (25k, 50k, 100k) without a real entity. so I recommend getting an LLC. You can get business credit cards but banks want to see an LLC or corporation to extend business lines of credit.

How to Register Your Business 

How to Register as a Sole Proprietor

Here are the basic steps to file the necessary paperwork for forming an LLC and registering as a sole proprietor.

Of course! Here are some more conversational explanations of the steps to form an LLC and register as a sole proprietor:

How to form an LLC:

  1. Pick a name for your LLC that’s not already taken in your state and meets your state’s requirements.
  2. File an Articles of Organization form with your state’s Secretary of State office. This form typically asks for basic information about your LLC, like its name, address, and the name and address of your registered agent.
  3. Draft an operating agreement for your LLC. This outlines how your LLC is run and who owns it. Some states don’t require an operating agreement, but it’s still a good idea to have one.
  4. Get any necessary licenses and permits for your business. Depending on where you live and what you do, you might need specific licenses or permits to operate your LLC.
  5. Apply for an EIN from the IRS if you plan on hiring employees or opening a bank account for your LLC.

How to register as a sole proprietor:

  1. Decide on a name for your business, whether it’s your own name or something else.
  2. Get any licenses or permits you need to legally run your business in your area.
  3. File a “Doing Business As” (DBA) form with your state’s business registration office to register your business name.
  4. Apply for an EIN from the IRS if you plan on hiring employees or opening a business bank account.

Remember, the specific rules and requirements for forming an LLC or registering as a sole proprietor vary by state and local municipality, so be sure to do your research and follow the guidelines for your location. For example, in Oregon, you can legally run a business after filing an “Assumed Business Name” alone, but may still need local business licenses. 

Recommended: Secretary of State Offices Directory | Where to File a Business License

Frequently Asked Questions

What are the disadvantages of an LLC vs a sole proprietorship?

LLCs can be more costly and require more paperwork than sole proprietorships, but they offer greater personal liability protection. Sole proprietorships are generally easier and cheaper to set up, but leave you personally responsible for any business debts or legal issues.

What is more risky, a sole proprietorship or an LLC? Why?

A sole proprietorship is generally riskier than an LLC, as sole proprietors are personally liable for any business debts or legal issues. Forming an LLC can offer greater personal liability protection, which can help shield the owner’s personal assets from business-related risks.

How do business owners pay themselves?

Business owners can pay themselves in different ways, including salary, dividends, or draws/distributions from business profits, depending on the business structure and personal financial needs. And, some companies pay the owner’s salary with a business credit card. It’s important to consult with a financial advisor or accountant to ensure compliance with legal and tax requirements.

Conclusion: Which Structure is Best for You?

Whether you should choose a sole proprietorship or an LLC is based on a number of factors. Do you want more ease or more protection? Do you have specific tax needs? By now, you should have an idea which is best for your operations. 

However, if you want substantial lines of business credit, there is a clear choice: form an LLC…You can certainly obtain business credit cards as a sole proprietor, but to get those larger lines of credit in the tens and hundreds of thousands range, most banks will want to see a more formal business entity like an LLC or corporation.

To learn how to obtain up to $100K in business credit in as little as 30 days, join Business Credit Workshop today.

Is it Illegal to Use a Business Credit Card for Personal Use? +More Answers

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Have you ever wondered whether you can use your business credit card for personal expenses? 

It’s a common question among business owners, but the answer can be a bit tricky. 

While we can’t give legal advice (if you need that, please talk to your attorney and your CPA), we’re here to provide you with helpful information that can guide you in making informed decisions for your business — One interesting thing we found out is that using your business credit card to pay yourself a salary as an employee of your own business can be considered a legitimate expense. 

Pretty cool, huh? 

We’ll delve into this and other commonly asked questions about business credit card use in this article, so keep reading to find out more!

Here’s what’s in store: 

Let’s rock and roll!

Scenario: Employee Uses Company Credit Card for Personal Use

While most of our content is targeted at business owners, you might be reading this because you’re wondering if you can add a pair of shoes to your business order, and still pay with your company’s corporate card. Here’s what I can tell you. 

When an employee uses a company credit card for personal expenses, it can cause a lot of problems. 

First off, it’s usually against company policy, which means the employee could face some serious consequences like getting in trouble with the boss or even losing their job. From a legal standpoint, this is risky for all parties because if the expenses are shady or illegal, both the employee and the company could face a run-in with the law. 

Next, staff members that use a company’s card for non-business expenditures can complicate finances because it’s hard to keep track of personal expenses and separate them from business expenses — it could cause some major issues with taxes and budgets down the road. 

Lastly, if personal spending exceeds the credit limit on the card, it can result in fees or penalties, which will hurt the company’s bottom line.

Can you use business credit card for personal use Reddit

Image source: Reddit

So, if you accidentally used a company credit card when you didn’t intend to, or if you notice that an employee used your business credit card for something questionable, it’s best to act fast. 

How to Prevent Personal Spending on Company Credit Cards

Q: Why does our Amazon business report show an order for a gold-plated toilet seat? 

A: Someone wanted to feel like a VIP on the company’s dime. 

In all seriousness, it’s crucial to make sure that employees use company credit cards responsibly and only for legitimate business expenses. Otherwise, the company could end up footing the bill for some pretty outrageous purchases!

Here are some actions you can take to avoid personal employee spending on your business credit cards:

  • Create clear policies — Make sure everyone knows the rules when it comes to using company credit cards. This means setting out clear policies on what expenses are allowed and what expenses are not allowed.
  • Set spending limits — Give your employees some guardrails by setting limits on how much they can spend with the company credit card. You can also set daily or weekly limits to help control spending.
  • Monitor transactions — Keep a close eye on credit card transactions to make sure there are no unauthorized or personal expenses. This means setting up alerts to notify you of any unusual transactions or spending patterns.
  • Require receipts — Make sure your employees know that they need to submit receipts for all credit card expenses. This helps ensure that all expenses are legitimate and for business purposes.
  • Provide training — Never assume that everyone just knows how to use a company credit card. Provide training that covers your company’s spending policies, guidelines, and best practices for managing credit card expenses.

By doing these things, you can help prevent personal employee spending on company credit cards…. and ensure that all credit card expenses are legitimate and for business purposes only.

General Rules for Business Credit Cards

First and foremost, you need to understand that business credit cards are intended for business expenses…legit ones! This means that you should only use the card to pay for things that are related to your business, like office supplies, travel expenses, and other business-related costs.

Next, it’s vital to keep your personal and business expenses separate (i.e. you should never use your business credit card to pay for personal expenses, like groceries, clothing, or personal entertainment). 

On a similar note, you need to keep track of your spending. You should monitor your credit card statement regularly to ensure that all charges are legitimate and for business purposes. When issuing business credit cards or corporate cards, it’s also a good idea to set spending limits for yourself and your employees to prevent overspending.

Lastly, be sure to pay your credit card bill on time and in full every month — Late payments can devastate your business credit score and result in hefty late fees and interest charges (remember, you should credit card funds to invest in assets, not squander on liabilities).

Note, that business credit card policies vary between credit card companies and businesses have a right to set unique spending policies within legal guidelines in their jurisdiction. 

Amex business card for personal use

By following these general rules, you can use your business credit card responsibly and avoid any potential issues down the road.

What Can You Use Business Credit For?

In a word, you need to use your business credit for business expenses. 

However, in some industries, expenses that seem frivolous can be completely above board — for example, stylists in the beauty business need to look nice, so they can buy makeup, clothing, and haircare products. And, for businesses with dress codes, you might have a green light on that Armani suit you’ve been eyeballing. 

So, what constitutes a business expense? 

A business expense is any cost incurred as part of running your business, most commonly: 

  • Rent for your office space
  • Equipment purchases
  • Employee salaries
  • Marketing expenses
  • Travel costs.

In addition to these more obvious expenses, there are also many other items that can be considered legitimate business expenses, depending on your industry and specific needs. For example, as previously mentioned, in certain industries, expenses like clothing, makeup, and hair care products can be considered legitimate business expenses.

Other examples might include: 

  • Home office expenses
  • Professional development courses or certifications
  • Certain meals and entertainment expenses (if they are related to business activities)

It’s important to note, however, that not all expenses will be considered legitimate business expenses. Any personal expenses, such as vacations or personal entertainment, should never be charged to your business credit card.

In general, it’s always a good idea to consult with a financial professional, like an accountant or tax advisor, to ensure that you are using your business credit card appropriately (and taking advantage of all eligible tax deductions).

Paying Yourself With Credit When You Own a Business

As a business owner, there are a few different ways you can pay yourself. One common method is to pay yourself a salary, which you can do using a number of different payment methods including checks, direct deposit, or even a credit card. 

Yes, you read that right – you can pay yourself a salary with a credit card!

Now, before you go swiping that plastic, it’s important to understand the pros and cons of each payment method. 

For example, paying yourself with a credit card may be convenient, but it can also come with high interest rates and fees if you don’t pay off the balance each month…while other payment methods like checks and direct deposit may be more traditional, they might also require more effort and may not be as flexible. 

Regardless of which payment method you choose, it’s important to manage your business finances wisely: 

  • Create a budget
  • Keep track of expenses
  • Set aside money for taxes and emergencies.

By taking these steps, you can ensure that you are paying yourself in a sustainable way that supports both your personal and business financial goals.

So, is It Illegal to Use Business Funds for Personal Use?

In general, it can be illegal to use business funds for personal use, especially for employees whose companies prohibit it; this includes paying personal expenses and withdrawing cash from a business account to spend on personal items. 

Is using a company credit card for personal use embezzlement?

How often people get caught doing this, I can’t begin to guess. And, the penalties would surely vary depending on the severity of the crime — which is why you should consult with an attorney or CPA to ensure legal compliance. 

Using business funds for personal expenses can sometimes be considered embezzlement or fraud, and can result in serious legal consequences…It can also damage your business’s financial stability and reputation.

That being said, in my experience, there are some exceptions to this (like a business owner paying their own salary). 

How Business Credit Affects Personal Credit

As a business owner, you need to understand the relationship between your personal and business credit. While they are technically separate, your personal credit can still impact your LLC in a few different ways. 

If you have a poor personal credit score, it may be harder to get approved for business loans or credit cards…On the other hand, a strong personal credit score can make it easier to access funding and other resources for your business.

To manage both your personal and business credit effectively, there are a few key tips to keep in mind: 

First, make sure to keep your personal and business finances separate as much as possible: open separate bank accounts and credit cards for your business and avoid using your personal credit to cover business expenses.

Next, be sure to monitor your credit scores regularly and address any errors or issues that arise promptly.

And, you need to maintain a good credit utilization ratio – that is, the amount of credit you are using compared to the amount you have available…Both personal and business credit scores are impacted by this ratio, so it’s important to keep your balances low and avoid maxing out your credit cards.

Recommended: Credit Secrets: Can You Erase Bad Credit History? 

Is it Better to Use Business Credit Card Points for Personal Things? 

While I wouldn’t encourage you to spend business credit on personal items, rewards redemption is another story. 

Using your business credit card points for personal things can be a tempting proposition, especially if you’ve been racking up rewards points with your business purchases. 

I’ve redeemed my Marriott Bonvoy rewards on more than one family vacation. 

However, whether it’s better to use those points for personal use ultimately depends on your business’s financial situation and your personal financial goals.

Here are some things to consider:

  • If your business has a cash flow problem and you’re relying on credit card rewards to make ends meet, it’s probably not a good idea to use those points for personal purchases. Instead, you should focus on using your rewards to offset your business expenses.
  • On the other hand, if your business is doing well and you have plenty of cash on hand, using your rewards for personal purchases can be a great way to enjoy some extra perks. Just be sure to keep careful track of your expenses and make sure you’re not putting your business at risk by overspending.
  • If you have a specific personal financial goal, such as saving up for a down payment on a home or a car, using your business credit card rewards to help achieve that goal can be a smart move. Just be sure to weigh the potential benefits of using your rewards against any fees or interest charges associated with cashing them in.

The bottom line is that you should consider the financial health of your business and your personal financial goals before making a decision.

Conclusion: Is it Illegal?

I’ve already said this a few times, but I would rather sound like a broken record than steer you down the wrong path: when in doubt about business credit spending, consult an attorney or CPA. 

The short answer is that business credit spending for personal use can be risky and it’s likely to complicate your business budget. Yet, there are plenty of totally above-water business credit spending categories you might not have considered (paying yourself a salary) — I tried to cover them here. 

If you want to learn how to obtain up to $100K in business credit in as few as 30 days, join Business Credit Workshop today.

A Credit Stacking Breakdown: What it is & How it Works

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Credit stacking is one of the latest catchphrases in the credit card realm. Naturally, as a business credit coach and expert, I had to check it out. I did a ton of research into the system (everything shy of hopping on a strategy call and joining the community) to see what I could find out. 

As usual, I want to share what I’ve learned with you. 

At first glance, credit stacking seemed a lot like what we teach at Business Credit Workshop…but it’s not — there are some fundamental differences. I’ll summarize the most glaring distinctions before I wrap up. 

If you’re thinking about hopping on a call with the Credit Stacking team to become a member, read this first. 

Here’s what’s in store: 

Now, let’s hop to it! 

What is Credit Stacking, Exactly? 

When I first heard the expression, I thought credit stacking might be akin to credit piggybacking, but I was wrong. 

Credit stacking is a popular buzz phrase (pretty catchy, really!) coined by Jack McColl — it refers to building multiple lines of credit in an alleged specific order to obtain large lines of credit. Essentially, it is a framework to apply for multiple cards at once with the least negative impact on your credit. 

With credit stacking, you can get up to hundreds of thousands of dollars in funding by applying for multiple credit cards and taking advantage of business credit (which is separate from personal credit). 

credit stacking course

McColl teaches about the system through a credit stacking course, online membership, and a Facebook group. Through these channels, members allegedly learn how to maximize their credit limits to grow businesses from the ground up with tens of thousands of dollars in credit. 

credit stacking login

The application process to join is simple and seems to help gauge where potential members are on their credit journey — which is helpful for a customized strategy. 

🚩 The company doesn’t display the cost of membership anywhere on its website and some sources say that it costs $4,500 or more to join. 

What is the Credit Card Stacking Strategy? 

credit stacking reddit

With the Credit Stacking system, essentially, you want to apply for cards in a specific order that might improve your odds of successful funding…this requires that you aren’t over-leveraged in the way that you have too many inquiries showing on your credit profile. 

To do this, you need to know which banks pull your info from which credit bureaus, and apply in such an order that all of your inquiries hit your report with minimal negative impact on your score. 

And, since Chase Bank is more strict about how many credit inquiries you can have to qualify, you should apply for credit with them first. 

Frequently Asked Questions

Why is credit stacking effective?

Credit card “stacking” is effective because it ideally maximizes the amount of credit you’re able to obtain by minimizing the impact of inquiries on your consumer credit report. 

What is the credit stacking analogy?

Think of credit stacking as building a tower out of blocks. You start with a solid foundation, like a base of small credit lines, and then add more blocks (larger lines of credit) on top in a specific order. This way, you can build a strong and stable tower of credit that allows you to access more funding opportunities over time. It’s like playing Jenga, but instead of removing blocks, you’re carefully adding them to build something bigger and better!

What are the effects of credit stacking?

Credit stacking can help you spread out your balances, increase your credit limits, and minimize the negative impact of too many inquiries. However, this can lead to high interest charges if you can’t keep up with payments, so it’s important to be mindful when using this technique.

The Credit Stacking Book by Jack McColl

I already told you that I didn’t hop on a strategy call or join the Credit Stacking group…what I did is read Jack McColl’s book, Credit Stacking: Accelerate Financial Freedom With Business Credit. 

I’ll tell you that it seems to be self-published. It could have used an editor to help condense some of the information (which is absolutely valuable nonetheless). 

And, while I can’t shame the hustle, the book was pretty promo-heavy, leading readers into the Credit Stacking program by teasing some of the resources that are exclusive to members. 

credit stacking reviews

With that said, I was taking notes the entire time, and here’s what I got from it. 

 → If you don’t want to read the entire synopsis, you can skip to the final takeaway. 

Chapter 1: Where Do You Want to Go? 

The first chapter of the book is all about mindset and vision — this is probably my favorite chapter because it’s so interactive. Before you implement the steps to stack credit and build your dream business, you need a vision. 

McColl leads into the book with questions such as, “Where do you want to live?” “What relationship do you want to have?” and “What career do you want?” He recommends you get a clear vision by answering all of the questions in his sequence before you move forward. 

Next, he shares his framework for daily journaling, recommending that you do something similar. Every day, you should write about the following:  

  1. What you’re grateful for
  2. Affirmations for yourself
  3. A recent win
  4. Desires for yourself
  5. A power list of needle-moving tasks you can accomplish today

With a clear vision and daily check-ins with yourself, you can take an honest look at your discipline, resilience, and environment to determine what you need to do to make your business strategies work.  

Before wrapping up, the first chapter looks at good debt vs bad debt. In a nutshell, good debt is invested in assets that generate cash flow or equity and bad debt is costing you money… think of it as assets = good debt, liabilities = bad debt. 

Chapter 2: Personal Credit 

The second chapter is all about consumer credit. Good personal credit gives you access to rewards cards as well as low-interest auto and home loans. And, according to McColl, better access to 0% interest business capital.

This is where the book starts to talk about the technical aspects of credit stacking like awareness of the three consumer credit bureaus, VantageScore vs FICO, credit score factors, and credit repair.  

When speaking on the three major credit bureaus, McColl mentions a specific template that Credit Stacking members use to analyze their credit profiles but doesn’t offer the template in the book. 

Vantage scores are more readily available for free (via Credit Karma, for example), but lenders typically pull FICO scores. McColl recommends myscoreiq.com, which costs $35.99 per month, to monitor your FICO score.  There’s a gray area between scores of 500 to 700, but below 500 typically means that a borrower is high-risk, and above 700 usually signals that a borrower is low-risk. 

Naturally, lenders like higher credit scores. 

But, if you have a low score, don’t let it discourage you, because, as McColl states, this can always be fixed. 

This chapter also breaks down the factors of a credit score and what you might do to maintain or improve each factor — this information is typically available with any credit monitoring system, but it’s good for beginners to understand: 

Payment history and amount of debt have the highest impact while credit mix and new credit are important too. After explaining each factor in more detail, this chapter goes on to share a few case examples of individuals who used the credit stacking strategy. 

One Credit Stacking member was able to obtain a $50K line of business credit from Chase Bank. McColl claims that this was 0% interest capital. In the case of this borrower, they had a strong personal credit profile, and their business entity was established properly…they also had a checking account and a connection with the relationship manager at the bank where they applied for the loan. 

credit stacking companies

Here, McColl mentions an important fact: You don’t necessarily have to have a large, established business to obtain large lines of credit. Small, new businesses can obtain credit too. 

Many business owners who started out with poor credit were able to obtain large lines of credit after implementing a credit repair system. McColl mentions that this process starts by disputing anything negative that might be holding your score down. He mentions that the Fair Credit Reporting Act (FCRA) has laws in place that protect consumers and enables them to dispute anything that is unfair or inaccurate and that the burden of proof is on the creditors.

McColl mentions a credit repair partner that Credit Stacking members can be connected with and cites some happy endings after working with these programs.  

⚠️ I do not ever recommend unethical exploitation of laws or institutions that are in place to protect you. I do recommend educating yourself on the regulations and strategies to repair your consumer credit profile. 

Recommended: Credit Secrets Book Review: Can You Erase Bad Credit History?  

Chapter 3: Credit Cards and Calculated Risk

The third chapter of the book starts with a pretty long intro to the story of Amazon. Then, it talks about why you should use credit cards instead of other types of capital to fund a business: protection, rewards, card benefits, and relationship building. 

Here, the book fails to mention freedom (this is why I like business credit over other funding types). Traditionally, when a company gets funding, it might have to rely on personal capital or investors who want control — with business credit, the business owner maintains control and freedom to make their own choices for their company. 

Recommended: How Business Credit Can Transform Your Life (Really)

Next, McColl recommends some credit cards you should apply for, and ones that you shouldn’t. He says that he doesn’t recommend that anyone apply with Capital One because they pull from all three bureaus, creating a ding on all three consumer credit reports. This is true, but he doesn’t mention that these “dings” last two years — they’re temporary. 

Then, McColl recommends some questions to ask yourself when applying, such as, “Do you have a travel card yet?” and, “Which bank are you looking to build a relationship with?”

Before he moves on, he covers when to apply, how to apply, and how to request reconsideration on a failed application. 

Chapter 4: Using Business Credit to Gain Momentum

According to McColl, the key to business success is momentum — the value of your company has a direct impact on momentum. 

The fourth and most extensive chapter covers the different ways you can fund your business to create momentum: 

  1. Your own cash (personal capital) — with this, you’ll foot 100% of the risk
  2. Business loan — lofty interest rates on a non-transferable lump sum of debt
  3. Get a partner — you’ll have to share control of business decisions
  4. 0% interest business credit card — if you keep your relationship with the bank in good standing, you’ll keep yourself “just one application away” from more business credit 

Note: McColl doesn’t mention all of the ways to fund a business like Y Combinator, seed funding, MCAs, nor the many, many others. 

Next, he explains that business credit won’t impact your FICO score, which is mostly true…if you apply for the business credit cards that are reported to D&B and not the three consumer credit bureaus. 

He then shares the process for setting your business up for business credit. 

This section discusses business SIC codes, and the fact that some are considered higher risk than others — General businesses such as “consulting” and “management” are best and may get better business credit results than “credit coach” or “real estate agent.” 

In a nutshell, you need a NAICS code that fits your business narrative in a low-risk category. 

McColl recommends that you look up your business on D&B to see if you have a DUNS number. If you don’t, create a profile with D&B…and make sure your NAICS code is the same with your bank, D&B, and your state business registry. 

Recommended: Everything You Need to Know About a DUNS Number

McColl strongly recommends that you use Chase Bank for your business checking, as he’s seen the most business credit success with Chase, however, he cites other major banks like BoA and US Bank and claims that you should have similar results. 

Basically, he says that you should only build a relationship with a bank that offers 0% interest business credit cards. And, he shares his framework for building your business credit: 

  1. Open a business checking account with the main (big) bank
  2. Open a business checking account with a regional bank or credit union
  3. If you already have an account with a regional bank, move some of your capital to a big bank
  4. Get your FICO score above 780
    1. No derogatory marks
    2. No more than one late payment
    3. 4-5 accounts that are at least three months old

The framework we teach at Business Credit Workshop is quite a bit different. 

Recommended: This is How to Build Business Credit Fast [Step-by-Step Guide] 

Next, McColl covers each of the four funding types from the beginning of the chapter (personal capital, business loan, equity partner, and business credit) in detail before he starts elaborating on business credit. 

Business credit is a way for you to finance business ops by borrowing from banks using your EIN rather than your SSN. McColl says you should have an LLC or a Corporation rather than a sole proprietorship, and I agree… 💯 

After this, he lists a handful of the benefits of business credit, such as the fact that business credit bureaus don’t include opening dates on their reports and you can go through rounds of applications (“credit stacks”) without harming your credit score.  

Then, McColl lists some ideas for ways to use business credit to grow your business (invest in equipment, rent office space, hire a mentor, etc.) and lists new business ideas for entrepreneurs: 

He mentions that there are ways to liquidate credit cards into cash, but doesn’t mention what they are. 

Recommended Resources: 

This chapter also mentions business credit requirements such as on-time payment history on your personal credit profile, a variety of accounts, and sizable limits on your consumer cards. Here, it starts to feel like the book exerts excessive information about consumer credit. 

McColl shares the difference between revolving credit cards — with and without interest — and charge cards (Capital on Tap, Divvy, and Amex) are discussed… he recommends that you max out your Amex cards and pay them off in full to get your limit increased. 

There are companies that will apply for business credit for you, but McColl recommends DIY credit applications. The companies that offer services like this aren’t always thinking in your best interest where high card limits and the number of hard inquiries are concerned. Plus, you have to pay fees for these services. 

The book then mentions that 0% interest credit cards aren’t necessarily easy to find (there was no database that houses all of the banks’ current promotions, so McColl built one…though, it’s only available for Credit Stacking members). 

In place of a database of cards with 0% introductory rates, you can use McColl’s recommended searches: 

“[your state] 0% interest business credit cards”

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As he wraps up, McColl summarizes inquiry stacking. “Stacking” credit inquiries can allow you to maximize your business credit. When you know which banks pull from which bureau, not all of your inquiries will show up when you apply for multiple cards. 

And, Chase is stricter about maximum credit inquiries, so McColl recommends you apply for any Chase business credit cards first. 

Tip: If you submit your applications in the branch, your applications won’t be flagged for technical issues like invalid IP, flagged VPN, or grammar mistakes. McColl suggests that you submit your application through a relationship manager for the best results (they work directly with the underwriting team, so they know what you need to get credit and can help you with your applications). 

The book then states that it is difficult to find a bank’s relationship manager to submit your applications and that Credit Stacking members are introduced to relationship managers as part of their membership. 

Finally, McColl shares his advice for filling out credit applications accurately. 

Chapter 5: Money

In the fifth chapter, wealth accumulation and money are covered. 

The first principle of wealth that McColl covers is compound interest. For example, you have $100 growing at 10%, and you earn $10 the first year. So, the next year, you have $110, and your earnings are $11. As this continues, your annual growth grows. 

And, if you have $250K to invest initially, with a 10% growth rate, you would have $11M after 40 years. 

There is a lot more information in this section about investing — buying low and selling high, dollar cost averages, etc — including examples of billionaires who invested wisely. 

The key takeaway is that you need to invest wisely in facets of your business that produce income and wealth. 

McColl then covers the importance of educating yourself — both about money and about your industry. Essentially, if you learn specific skills from experts in a niche, you save yourself the time and heartache of learning through trial and error. 

Likewise, it’s important to join networks of successful people who you can piggyback from their knowledge. McColl recommends in-person mastermind events in particular. 

Next, he covers Roth IRAs and the “infinite banking” concept. 

Roth IRAs allow you to invest, tax-free, if you keep your money in the account until you’re 59.5 years old and at a 10% fee if you withdraw sooner. The maximum you can invest in a Roth IRA is $6K per year. There are also exceptions to the 10% fee, such as withdrawing $10K to put down on your first home. 

This is an excellent investment opportunity, especially for young people looking to the future, especially since these accounts compound *see above.* 

The infinite banking concept is essentially the idea of an Indexed Whole Life Insurance Policy (not all life insurance policies are equal). With this type of life insurance, you get most of the benefits of building your net worth without triggering an MEC through the IRS…in a nutshell, it maximizes the cash value of your policy without negating the tax benefits. 

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Plus, nobody can come after money in an Indexed Whole Life Insurance Policy — not the courts, ex business partners, or spouses…nobody. And, all the while, it will accrue interest of about 5.5% while any loan repayment to the account will cost about 5%.

The rest of this chapter covers the fundamentals of cryptocurrency, centralized exchanges, and crypto hedge funds; these are pretty extensive explanations and I recommend you read the book if you’re interested to learn more. 

Chapter 6: Traveling on Credit

The sixth chapter covers how travel creates work-life harmony and how this can be achieved with business credit. 

If you opt to travel while working, you need to be sure you can have a consistent, reliable WiFi connection — a fast one — anywhere you go (this is especially true if you opt to travel full time). McColl also recommends that you make sure you’re close to a gym, beach, or hiking trails to stay in shape. 

Basically, you can travel on credit by maximizing the use of your credit card travel rewards and points. 

The final section of this chapter covers credit card points accumulation and redemption strategies, how to gain status with hotels (Hilton and Marriott), and credit card travel benefits. 

Chapter 7: The Road to Independence

The seventh chapter wraps up the book — it starts with some motivational ideas about maintaining freedom and reaching goals, with the thought that independence, once earned, is hard to keep. 

McColl concludes by inviting readers to take advantage of a free “strategy session” with the Credit Stacking team, followed by lots of testimonials and case examples of what members have achieved. 

The Takeaway — Is Credit Stacking Legit? 

In a word, yes, Credit Stacking is a legitimate technique and sort of mastermind group that has helped people obtain substantial lines of credit…tens of thousands of dollars, in fact.

I don’t believe they’re going to steal your money if you sign up — these guys seem to be for real