Obtaining high-risk merchant accounts can be uphill battles if you do not know what to expect and how to make your business more palatable to merchant service providers and their underwriters.
Understanding how lenders think about certain businesses and what steps they can take, make getting high-risk merchant accounts that much easier.
What Makes a Business High Risk
Banks and lenders classify certain businesses as high risk for numerous reasons, including industry type, a history of bad credit or no credit, and a reputation for high volumes of chargebacks and refunds. But, those are just a few. New businesses, merchants that sell exclusively online, those that sell overseas, and companies that sell high-ticket items, like airline tickets, also get labeled “high risk.”
Merchants that sell e-cigarettes, health supplements, and furniture, as well as businesses that offer adult entertainment or gambling, are commonly considered high risk.
Reasons for the High-Risk Classification
Financial institutions do not want to approve merchant accounts for high-risk merchants because doing so increases their potential financial risks. See, merchant accounts are really forms of credit. In the simplest of terms, when a customer makes a purchase with a credit card, the bank funds the transaction to the merchant until it clears completely.
High-risk merchants also have higher chargeback thresholds than low-risk businesses. Every processor uses a chargeback monitoring program, which keeps track of every business’ chargeback ratios. Chargebacks are when credit card companies demand a merchant repay funds for a fraudulent or disputed transaction. Too many chargebacks show lenders that a business is flawed, making it a risky endeavor for a bank. This is because a merchant gets charged a high fee for every chargeback. Too many fees can put a financial strain on the business, and the merchant service provider can get stuck with the bill.
Where to Begin
First, know that it is possible to get a high-risk merchant account, but expect to pay higher rates and processing fees, and be ready to commit to a rolling reserve. A rolling reserve, which is a fund of money that is kept in case your business ends up with a lot of chargeback fees or refunds it cannot cover, is pretty standard for high-risk merchants.
Prior to applying for an account, merchants should know their processing and equipment needs. You want to be sure the account meets your needs. For example, if you have high transaction volumes, you do not want to enter into an agreement with a low transaction volume cap.
Factors to Consider When Applying for a High-Risk Merchant Account
Find Out About Any Additional Fees
From monthly minimums to statement fees to start-up fees, the payments industry is wrought with extra fees. All of these will impact your bottom line, so make sure that your budget can handle them.
Read the Fine Print and Ask Questions
Before you sign any contract, make sure you understand it. Know the length and the terms of the agreement, whether you pay any penalties if you cancel, and the merchant account provider’s customer service track record before you move forward with an agreement.
Most importantly, be honest. It may seem like the best way to get a merchant account is to lie about what you do, your average number of transactions per month, and average ticket prices, but it’s not. Failing to give fair estimates or to withhold any information that may raise your risk level will only hurt you down the pike. If a merchant account provider notices a suspicious sale or gets wind of a questionable product or service, it will freeze your funds or, worse yet, terminate your account.
When It’s Time to Choose a Provider
When you want to get approved for an account without a lot of hassles, go with a high-risk merchant service provider. eMerchantBroker.com (EMB) offers a simple, streamlined online application process that makes it easier to get high-risk merchant accounts. It specializes in working with high-risk businesses, including those that sell e-cigarettes, phone cards, nutraceuticals, and credit repair services. Additionally, it works with businesses that have no credit or poor credit and those that have had merchant accounts terminated in the past. Best of all, merchants can get approved in as little as 24 hours.