Being Approved For A High Risk Merchant Account
If you are applying for a merchant account for the first time or you are experiencing issues being approved, there are some points to consider when applying.
Understanding The Process
There are two parties involved with the underwriting and approval process of a merchant account; the account representative along with the (preliminary) underwriter at the payment processor and the (final) underwriter at the bank.
Similar to applying for a; loan, mortgage or insurance policy, there are multiple underwriters that need to sign off on approvals. These underwriters assess the risk involved with the account and make the decision if the reward is worth the risk. In the payment processing industry, risk comes mainly in the form of chargebacks.
Understanding the different aspects of merchant account underwriting is the most powerful tool a merchant can have when applying. This knowledge is acquired the easiest by working with a competent account representative that helps your business navigate the approval process.
The overall goal of the account representative is to receive an approval. The majority of these reps work on a strictly commission basis and are aware of the requirements and processes of the different banks they partner with and are able to work with the merchant to assemble a strong application package that will most likely result in an approval. The reps usually will not waste time working with merchants that do not listen or that do not respond to repeated requests, remember, they are commission only and accounts with little chance of actually being approved are quickly deleted. It is best in the beginning to explain to your account rep what you are looking for and work with them to achieve approval.
Many High Risk Accounts Are Not Cut And Dry
Most high risk merchant accounts are not easily setup with the first set of documents that are submitted. It is not uncommon for underwriters to request additional documentation. Usually the bank will request an updated document or statement to complete their final application package. Businesses should be aware of the common bank requests during the underwriting process and understand that they will need to comply in order to be approved. Merchants unwilling to adhere to the bank’s requests will find themselves without a merchant account and possibly without an account representative eager to submit them to other banks.
Several Points To Consider When Navigating Your Way Through The Application Process
1. Be realistic and understand; your business, the industry and the risk they both present to a payment processor/bank. If your industry is considered high risk, be aware that the underwriting process will be more in depth than a normal low risk account.
If you are applying for an offshore merchant account, be aware that monthly volume and previous processing history are the most important factors when applying offshore. If you do not have either of these, the approval process will take longer.
It is true that certain high risk merchants are able to be approved within 1 day, however; most high risk merchants will be approved within 1 week and some accounts are approved within 1 month. It depends on the strength of your company and the history you can provide.
2. Always be completely honest with your account representative. Finding and working with a great account representative in the high risk industry is a great benefit to the merchant. Merchants have the ability to speak with a person that has previously setup hundreds of companies with high risk payment processing services. They know the industry, they know the bank and they know how to get approvals. If you are not 100% forthcoming with them, it will come out with the bank and the account will turn into a decline. Most company issues are not decline threatening, unless they are concealed. Always be completely honest with your account rep.
3. The more information you provide, the higher your chance of approval. You can never provide too much information on your business to the bank. Not only will more information cover all of the required documents stipulated by the bank, it will also make your business look more professional, more serious and more legitimate to underwriters.
It does not take long for underwriters to decline accounts that are not complete. It shows that the owners are not serious and that the company will most likely be a short-term endeavor; in other words, a waste of time for the processor and the bank.
4. Provide current processing statements. Every underwriter (low risk, high risk and offshore) wants to see processing history. It is similar to applying for a car loan and having the bank check your credit. It is not always required but once you provide it, you normally receive better rates and better terms in addition to being approved much faster.
5. Startup businesses are more difficult to be approved. Similar to a borrower with no credit, startup businesses are considered riskier than already operating businesses (with processing history). There is no track record, making it riskier for the bank and processor. When you apply for a merchant account as a startup, be willing to wait a little longer and be willing to submit additional documents, like a business plan, to be approved. Business plans are extremely helpful to underwriters. It explains your business in full and shows that the owners are serious about succeeding.
6. Incomplete application packages are not helpful to underwriters. Some companies believe that submitting just the application or the application with a couple documents will “get the ball rolling” however; that is not the case. Partial application packages are not even reviewed until the full application package is submitted. It is very important to FULLY complete the application and submit it in with ALL of the supporting documents. This will move along the underwriting process and help to secure approval as soon as possible.
7. The most important goal is to be approved. This sounds obvious to most but some merchants focus on insignificant details of their application, putting the full approval at risk.
An example would be a company that is currently processing $100k per month and applies for a new account with a monthly limit of $400k since they feel they will reach that monthly amount within the next 90 days. A knowledgeable rep might explain that $400k is too high and apply for $150k or $200k a month with the ability to increase the limit 50% monthly. Now, both amounts on the application get the merchant to the desired target of $400k per month within 90 days, however; the bank is much more likely to approve an account at $200k with a 50% monthly increase than $400k off the bat. It gives the bank 90 days to monitor the business’ processing prior to increasing the limit to $400k.
It is not uncommon for account representatives to tweak applications in order to obtain approvals. It is much, much easier to increase the limits on an account or improve the terms of the approval once the company has actively processed with the bank. Underwriting is based around comfort. If the parties extending risk are comfortable with the business, there is a very good chance the business will receive everything they want. Comfort is easily earned when a company is processing with limited chargebacks and limited issues.
For more information on how to apply for a merchant account, please click the link below and complete the short, 4 question online application.