If your business is growing and you are sick of paper invoices then you might be ready to open a merchant account. The only problem? Your business is high risk!
High risk companies impose a high risk on merchant providers and their partner banks. There is no magic wand to wave and get approved but this does not also mean that you will automatically get rejected. In order to be approved with other similar businesses, it takes a lot of work. Don’t fret, this is all worth it in the end.
Applying for a high risk merchant account through a payment provider makes the process simple. However, the bank still has policies that you will be required to adhere to. Understandably, they are taking on risk. Your business information will always be highly scrutinized. Therefore, you should make sure that everything is in order.
What You Should Know
• You need a business bank account
Whether you are part of a business partnership or a sole proprietor, you require a business bank account before you can apply for a high risk merchant account. As a default destination for all of the funds that you transact, the account must have a large enough balance to cover any processing fees and other applicable fees.
• A business license is a requirement
Every business owner requires a license in order to be registered in a region. You not only need it to open a merchant account but also to conduct a number of business transactions. Merchant account underwriters review a copy of your license to validate your business standing.
• You need to apply
The merchant account underwriting process requires an application that takes a short period of time to complete. The application requires information about your business as well as the authorized signer on the account. You will also be required to list your business start date, authorized signatory information and contact information.
• Underwriting is necessary
For instance, if your business processes a transaction through your merchant account but cannot deliver the product or service, then the customer will generate a chargeback. Unfortunately, banks do not want to be associated with the risks of these chargebacks.
As such, it is important to work with experienced processing partners for the underwriting and approval process. However, there are also some merchant account providers that have a department dedicated to helping new merchants set up their accounts.
5 Factors That Will Affect Your Approval
There are certain factors that can make it hard for you to open a high risk merchant account. They include:
• Bad credit history
If you have a bad credit then you will most likely not be approved for a high risk merchant account. However, do not lose hope. You may not work with the merchant processor of your choice but there are a few processors who work with high risk, low credit score applicants.
• New companies
If your company is newly-formed then it is a much higher risk. Many providers prefer to set up merchant accounts with reputable high risk companies.
• High-risk industry
If you belong to high risk industries such as online gambling, pornographic websites and multi-level marketing companies among others then you will find difficulty in obtaining a merchant account.
• Average ticket price
If you have an extremely high average ticket price then your chances of approval will greatly diminish. Large transactions mean a larger chargeback. This poses a higher risk to the providers.
• Expected transaction volume
The expected transaction volume is the dollar amount of credit card sales that you will generate on a monthly basis. This figure is not constant, it varies according to the nature of your business. The higher your volume, the more chargebacks; something merchant account providers avoid. As such, when you are applying for expected transaction volume, only ask for the minimum that you really need.
Tips That Increase Your Merchant Account Eligibility
In order to acquire a merchant account for your high risk business, the following tips will always come in handy:
• Ensure a positive credit rating
Ensure that you do not have any past bankruptcies, late payments or liens that will hinder you from acquiring a high risk merchant account. You can always contact a credit management bureau and explain that any discrepancies have been cleared up. Having good credit will always make a favorable impression.
• Be willing to pay higher fees to accommodate special account requirements
There are special restrictions that should be adhered to in order to open a high risk merchant account. This may include paying a certain amount of fees in order to generate revenues and stimulate impulse purchases.
• Find a credit processor that suits your needs
Do not be afraid to shop around for the right processor. Consider their discount rates, equipment, reserve fees and chargeback fees among other factors.
Your high-risk business should not hinder you from acquiring a merchant account. Always know what to expect when beginning the application process. With these strategies, you can be certain that your experience of securing a high risk merchant account will go smoothly and propel your business to the next level.