Jul 18, 2014

Bad Credit is Risky Business

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Not Two Peas in a Pod

Like oil and water, a bad credit history and an entrepreneur spirit just do not mix. Unless, that is, you have the tools and the know-how to work on improving your credit rating, while still pursuing your dream of starting up a new business. A new business venture usually requires a great deal of start-up capital, which very few of us will have on hand. We will need funds to buy, rent or lease items such as space, equipment and machinery; pay up front for certain goods, services and raw material; and take care of the payroll for any employees we might need to hire. To do all of this we hope to have some institutions extend a line of credit to us. They, of course, will check our credit history and find out we have been labeled as ‘high risk’.

What Does a ‘High Risk’ Label Mean?

Being labeled a high risk could possibly have two connotations, and either one will make it difficult for you to get your business off the ground.

1.        Some businesses, due to the very nature of what it is that they do, are given a high risk label by creditors. Some of these types of business are online dating services; healthcare  providers; gambling and gaming businesses, such as online casinos; agriculture; construction; sports bookies; online pharmacies; and credit repair merchants since their     credit repair merchant account accepts credit card payments on line.

The label is given due to several factors, for example:

  • There is a high incidence of customers cancelling transactions, returning goods, and asking for refunds;
  • There is the propensity for credit card fraud;
  • There is a predisposition to accidents (whether fatal or non-fatal); and
  • The required input costs are high.

Also likely to give your business a high risk label is the quantity and quality of your competitors, particular government regulations that apply to your industry, and the general economic climate.

2.   It is likely that the high risk label applies specifically to you, due to your poor credit history. In other words, creditors see doing business with you as a carrying a level of risk of them losing money because you have

  • A low credit score;
  • A history of making late payments;
  • Defaulted on payments and perhaps had one or more of your accounts sent to a collection agency; and
  • Been turned down by other creditors.

How to Get Going

To get your business off the ground, you have several possibilities to consider.

Seek out a private lender – a friend, family member, former boss or co-worker with faith in you and/or your idea and some cash to spare. Documenting the loan and your repayments may actually go towards helping to raise your credit score. This can be done quite efficiently by a loan management company.

Consider using a micro-lender or a web-based lender. While their rates may be higher than those of a traditional lender, they are more likely to approve your request and will help to improve your credit score by reporting your payments.

Think about getting a government grant or a grant from a non-profit organization. You may find ones specific to your industry, your location or your particular circumstances. Be warned that this may require a decidedly fair amount of looking, and the competition will be stiff, but will be worth it if you stick out the searching and applying process.

Contemplate using a credit repair merchant. They may be classified as high risk by creditors, but they do have a credit repair merchant account which accepts card payments (credit or debit). It is their business to work with you to fix your credit rating. This may involve checking to ensure that credit agencies did not make mistakes when processing your account, or coaching you on the best ways to design and stick to a budget.  

Whatever the reason for your business being assigned that dreaded high risk label, take heart, your dreams of starting a new business are not completely squashed. Your options are varied but the one underlying fact is that you will need to work on improving your credit rating so your future ventures do not come upon these same road blocks.

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

Yes, EMB works with merchants who are building their credit, as well as those who have poor credit. EMB also approves merchants that have no credit card processing history and businesses that have lost their merchant accounts due to high chargebacks.

Several factors influence a merchant’s risk level. Though only one factor likely will not get a merchant classified as high risk, a combination of these may: business size, location, and industry, credit score, credit card processing history, a industry’s reputation for excessive chargebacks, a prior history of high chargeback ratios, and whether a merchant exclusively sells online.

Virtual terminals are stationed on a merchant’s website, making it easy for customers to make a payment or purchase online. Merchants or a payment processor can easily set up virtual terminals, so online businesses can accept credit and debit card and e-check transactions.

A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

After filling out EMB’s simple online application and submitting any necessary, requested documents, many merchants get approved within 24 and 48 hours.

EMB specializes in working with high-risk merchants. EMB works with many merchants, including but not limited to businesses in these industries: gambling and gaming, adult entertainment, nutraceuticals, vaping and e-cigarettes, electronics, tech support, travel, high-end furniture, weight loss programs, calling cards, e-books and software, and telecommunications.

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