He Invented Credit Stacking: How Entrepreneurs Access Business Funding

Darrell Hornbacher (00:00)
I’ve never told this story to anyone. We literally had a room, and this is the original platform. We literally had a room, a 10 by 10 room with nine fax machines. Think about that, fax machines, and they were all red.

Dialed to various banks. WAMU was there before they went bankrupt. Chase, US Bank, and and we had that we had them hotwired to nine different phone numbers with business development officers at each bank.

Dylan Silver (02:09)
Hey folks, welcome back to the show. Today we’re joined by Darrell Hornbacher, the founder of Midas Financial Company, the longest tenured business loan brokerage in the United States. He is

widely recognized as the original creator of the zero percent business credit card and loan stacking platform, which he developed in two thousand four. Darrell, thanks for joining us here today.

Darrell Hornbacher (02:31)
Hello, nice, my pleasure.

Dylan Silver (02:33)
Now, when we talk about the origins of what has become known as credit stacking, I’m talking to the guy, right? Where did this come about?

Darrell Hornbacher (02:42)
So back in the day, every bank had a $50,000 line of credit and or a $50,000 ⁓ 0%, and we’ll get into that in a minute, but 0% business credit card. And we would go out, and we were dealing with real estate investors at the time, and we would go out and say, hey, we have this product. It’s a line of credit. It’s it’s awesome. It’s cheap.

And you can get it really easy. I mean, back then, if you had a 680 credit score, had been in business for two years, and I could feel your pulse, I was giving you $50,000. And back in the day, we were getting paid one and a half to three points for that. So, you know, on a on a $50,000 gig, we were making $1,500 for about two hours worth of work. You know, how how much better can it be?

And what ended up happening is one of the ladies that was my ended up being my top salesman. I mean, back in 2004, I was paying her $250,000 a year, commission only. So think about that. Yeah. And she said, Well, Darrell, why if we’re getting fifty thousand dollars and we’re getting three points, that’s fifteen hundred dollars. What about if we

Did multiple applications and ⁓ worked it out that we were getting people 250 or $300,000. I said, you know, let me look into that. Well, back then the credit reporting in qu I i.e. inquiries was and very archaic. It would take if you applied for a loan, that inquiry wouldn’t show up on your credit report for three days.

That’s that’s what it was. So we went out, and this you’ve heard this first. I’ve never told this story to anyone. We literally had a room, and this is the original platform. We literally had a room, a 10 by 10 room with nine fax machines. Think about that, fax machines, and they were all red.

Dialed to various banks. WAMU was there before they went bankrupt. Chase, US Bank, and and we had that we had them hotwired to nine different phone numbers with business development officers at each bank.

We would get a deal, and if they said, well, we’ll take 300,000, so at $50,000 a piece, that’s six different applications.

So we would copy the application six times. We would load them in the fax machine. Then our admin would call each of our representatives at the bank and say, I’m sending you a deal right now. And I need you to process the deal immediately. And the whole reason we did that was to game the system as far as inquiries go. So once

She had, you know, everybody in agreement that they deal with our application right now. She’d walk back into the room and she’d press send, send, send, send, send, send. Just that’s what she’d do. All of the banks would get the applications within minutes of each other. All of the banks would file the paperwork. All of the banks would approve.

Each one of the borrowers, even though they were applying for six or eight or ten different deals or loans at a time. And then back then the banks trusted people like us. We would go in and pick up the checkbook, pick up the credit card, and we would deliver it to the client, say, sign this paper, and here’s your money. And that’s how it happened. And it was this was the wild, wild west.

Days of lending, and it was amazing. And there were no nefarious, felonious criminals trying to game the system. We were kind of you know messing around with inquires, but who you know it? Well, you’re not old enough to know, but for us old timers, it was it was a different world, but that’s how it started before long. ⁓ so this started in April.

Of two thousand four by November, Midas had seven offices around the country and a hundred salespeople.

Dylan Silver (08:04)
wanna ask you about one of the the trends that I’ve seen ⁓ recently ⁓ for this is that folks have been using their business credit cards as a form of ⁓ cash

Meaning they’re they’re not using this, you know, to purchase goods online. They’ll actually be taking it out, but not as a cash advance. They’ll be using like a third party service to effectively liquidate the the the balances, if you will. What’s your feedback on this and did you see this developing early on?

Darrell Hornbacher (08:35)
So

that actually, and I I don’t want to mention names, but actually the head of one of the biggest business credit programs in the country was the original credit card liquidation facilitator. And he would go out and he would say, Okay, my credit card fees are three percent, because that’s what they were back then.

And my ⁓ I need to make money, so I’m gonna charge you three percent. So for a total of six percent that I’m gonna charge you, you can I’ll liquidate whatever you want. And at the end of the day, you maintain your zero percent because if you go get a cash if you have a zero percent credit card, you go get a ⁓ a cash advance from the bank where that drew the credit card, your zero percent is gone. Over it’s gone.

So now you have to ⁓ go back into their 18.99 up to 2999, whatever it is. And it’s it’s it’s egregious, in my opinion. But by doing this, you’re paying the fees. The fees are a write down. So it shouldn’t be if you’re concerned about the fees and in instead of the liquidation event and having that cash to leverage, then you’re in the wrong business. But bottom line is it’s

One of my closest friends in the industry right now liquidates about somewhere between ten and fifteen million dollars a month. It’s crazy.

Dylan Silver (10:10)
Holy cow.

When when we talk specifically about those times and those early days, we go back to two thousand four and we can go up to you know before the the global housing crash. Wha was it a lot of real estate investors that you were interfacing with, or or was it really folks from, you know, any business model?

Darrell Hornbacher (10:30)
Was any business model, but that was when back in that day I lived in Denver, that’s where I started Midas. And I don’t know if you know that, yeah, I’m sure you know that Denver, Colorado, and Florida were the two biggest, let’s say, rehab centers of the country. And we had 17 sales women. I always hire women to sell.

But we had 17 saleswomen in Denver, Colorado, each making ⁓ a buck fifty a year selling to real estate rehabbers.

Dylan Silver (11:10)
Wow. And and so at at that point in time, it must have been pretty novel because of course, you know, the the internet wasn’t what it is today. Of course there’s no AI, but then also y this is a n brand new concept. Those conversations had to be pretty unique.

Darrell Hornbacher (12:01)
Well, they were unbelievable for the most part. You know, when and and I’m not when I told you what I did, I mean I would literally say, you know, when people would say, what does it take? I’d say, do you are you in business two years? Yes. Or if they said no, I would I had my admin scour the the Colorado Secretary of State office looking for corporations that had been dormant.

And then I would go buy them and I would reclassify them. And if somebody said, No, I don’t have a two-year-old corporation, I’d go and sell them one for a couple thousand bucks a year or for a couple thousand bucks, and I’d have 50 bucks into it. It was crazy. And the next question was: ⁓ what’s your credit score? As long as it FICO score hits 680.

That’s all we cared about. And then I’d say, let me reach through the computer screen. I need to feel your pulse and make sure you’re alive. And I’m being a little facetious there, but you understand. But no, bottom line is that’s all it took. And and you know, everybody says the crash in ⁓ 08 was a result of of bad real estate debt. Well, that’s true. Number one, we wrote a lot of loans to people that didn’t deserve them. Number two,

Wall Street would take those loans, create derivatives, and sell worthless derivatives for gazillions of dollars. But the third time on that fork that nobody ever pays attention to, and Walmuth, you remember why you’re too young to w remember Washington Mutual. They’ve been gone for a long time. But Washington Mutual had 5,500 branches across the country.

And they were so invested into these fifty and hundred thousand dollar lines of credit to fix and flippers. And when it didn’t mesh in October or whatever it was of two thousand and eight, they they they they couldn’t liquidate. Cause I mean houses that they had financed for 200,000 in in Tampa or Orlando were selling for eighteen thousand dollars. That’s what they were selling for. So they were upside, they were totally upside down.

But the bottom line is, is that we ⁓ you know, we we were able to s I would say 70 per seventy to 75% of our business back then was was fixing flippers.

Dylan Silver (14:30)
Now when we talk about that time period during the the global ⁓ housing crash, I mean what a time to be involved with real estate lending, right? And in the creative ⁓ section that you’re in specifically, what was happening? Were were were people then at that point in time like scrambling for cash? Were were banks giving out credit cards at this point in time? What what was the landscape like?

Darrell Hornbacher (14:55)
The landscape is the whole thing shut down for 18 months. So go end of 2008 and all of 2009 and the beginning of 20 and 10, they got back into business. But for approximately 18 months, there were no business credit cards anymore. I mean the business just evaporated. I had saved a ton of money. So I was able to close all of my offices.

keep the one in Denver open. ⁓ and so I could, you know, maintain my record of longevity. And then we just we did other things. We did, you know, ass more asset based lending, more commercial real estate lending and things like that. But yeah, it was they were interesting times for sure.

Dylan Silver (15:44)
You know, you ⁓ having been active with real estate investors, I’m sure saw a lot of turnover in all sides of the real estate space. Flippers coming and going, mortgage loan originators coming and going, right? ⁓ having survived that, having gotten through that, what were the the takeaways for yourself? You know, do you think we’ll ever see another time like that? And how can people survive times like that?

Darrell Hornbacher (16:48)
I think I think the I think this economy is too big to go through that again. I think we’re always going to see the fluctuations in the market, fluctuations in the real estate market. ⁓ but I I personally don’t feel that we’ll ever see a crash again like ⁓ eight. My only my opinion, and you’ll have a bunch of people will tell me wrong based on stats, but you know, it

I just see, I watch and I read every day and and I just look at this, you know, the everybody’s saying this economy is bad right now. And I’m not sure of that. I I by I have a young girl, even though I’m old, I have a six year old, soon to be seven. And last year alone, we were in in at Disney two times in in at Disneyland, two times at Disney World and on a Disney cruise. And there’s people spending money like crazy.

Dylan Silver (17:45)
Left and right.

Darrell Hornbacher (17:46)
Yeah.

I’m like, what’s going on here? And I don’t know if they’re all living off credit cards or whatever. I pay cash for everything. But the bottom line is that, you know, we have I gear what we do by, you know, a couple of years ago, 75% of the money during COVID, 75% of the money we were lending out was what I call solvency money.

And that is borrowing money just to keep treading water. And 25% was expansion money. For the last two and a half years, we have been at it’s exactly flip-flop. We’ve been at 75% expansion and 25% solvency. So right there, that tells me everything I need to know.

Dylan Silver (18:33)
Now when we talk specifically about the current landscape of ⁓ credit stacking, right? And I’ve had we were talking in the green room there about all the folks that I’ve had on this show ⁓ who are themselves operating in this this capacity. This is something that has proliferated throughout real estate, right? And now i it’s in your vernacular, and if you’re involved in some way you you may understand that you have different options to fund deals. You could go hard money, but you could also go credit stacking. I’m sure

This must have been interesting for you to see this really take off like wildfire over the years.

Darrell Hornbacher (19:08)
Well, first and foremost, I wish I understood what ⁓ I wish I understood what shoot now I I’m brain farting. The ⁓ when you license your business

Dylan Silver (19:25)
Intellectual property, yeah, that type of thing. Yeah.

Darrell Hornbacher (19:27)
Well

no, what’s the when you reserve a name at the USP trade trademark? Trademark. Yeah. I wish, I wish that I had got a licensed trademark to this to credit card stacking, because either we wouldn’t be talking to each other or we would be talking from my house overlooking the cliffs in Barbados. But I didn’t know. So I still

You know, in like I said, I’m not George Clooney, but I’m pretty famous in the unsecured world. And I I live a great life. ⁓ but watching it expand and knowing that we were the people, it wasn’t just me, it was my employees. I I’m the last one standing, so I can accept it, but you know, it it it’s been really I look at it from an altruistic standpoint.

about the jobs we’ve created, about the money. I mean, we’ve created, we feel about 300,000 jobs over 22 years, which isn’t a lot, but it is a lot. Yeah. We’ve passed out over two billion dollars to over five thousand ⁓ entrepreneurs today credit card stacking is is really the unless you can go through SBA

Dylan Silver (20:33)
Yeah.

Darrell Hornbacher (20:49)
Or you can collateralize a loan ⁓ 3x, you’re not getting money from a big box bank. So knowing that we were that we created something that now 20% of today’s capital is obtained from existing small business owners by credit card stacking. And almost 50% of entrepreneurs use credit card stacking to get their startup money.

So think about that number and the magnitude of that. And that that allows me to sleep at night and justify my house and my car and whatever else I

Dylan Silver (21:26)
Yeah, amen. I mean that’s an incredible ⁓ testimony ’cause you you talk about the proliferation of something you created and seeing it and how much it has helped ⁓ business owners and small businesses and businesses scaling, right? And really, you know, been a a tool that people can have and add to their arsenal. It’s incredible. we are coming up on time here though, Darrell. Any new projects that you’re working on and then also anything you’d like to mention directly to our audience?

Darrell Hornbacher (21:51)
Yeah, so new pro you know, lending isn’t gonna change. They the only thing that’s changing is the way lenders look. And I’m talking anything from fintechs to big box banks to equipment leasers, you know, whatever. People are really scrutinizing more. the SBSS ⁓ product came out, which is a combination of your business credit score and your personal credit score.

as you can’t get a sba loan without a good sbss and it’s it’s it’s changed that way but lending still lending look at jamie diamond from from chase just come out two days ago chase they don’t make money unless they lend money and chase made twenty one point two billion dollars last quarter think about that that’s crazy so that’s that as far as I go

You know, we love to help people. We’ve made our bones. ⁓ we’ve got some really interesting JV product projects going on. I wish we had time to talk about, but we’re we’re not getting out of this mess unless the 33 million small business owners and entrepreneurs can contribute to fixing it. It’s the only way we’re getting out of this. You know, these jobs don’t come from Boeing.

you know, Chase and Wall Street, they come from Main Street America. And Main Street America needs to be prolific in everything they do. And ⁓ we’re just here to help. We we half the time we talk to people, we don’t we don’t borrow to them. We tell them how to go do it themselves. And we pride ourselves in that. And we walked away from literally high seven figures because the

Lending products that are all pervasive. I’m sure you know what an MCA is. We’ve sold five MCAs in our whole tenure because I don’t believe in it. ⁓ but we’ve walked away from probably really close to five million bucks in the last four years, net profit, because I won’t sell an MBA and MCA. So your clients always before you get involved in this, I need money overnight. ⁓

Don’t do it unless you talk to somebody like me. Cause there you do have other methods to obtain capital. That’s it.

Dylan Silver (24:18)
Thank you so much for joining us today and thank you so much for your time.

Darrell Hornbacher (24:22)
My pleasure.