Running a business is not without risk. Competition, security and fraud, compliance with regulations, protecting your reputation, and a myriad of other challenges make operating an establishment quite an unsettling journey.
When it comes to running a high-risk business, the stakes are even higher. Your business can be labeled high-risk if you meet at least two criteria: if you operate within a high-risk industry and if your business demonstrates a high risk for failure.
A High-Risk Business Defined
Banks, credit card processors, and insurance companies grant the high-risk designation to businesses if they determine that there is a “heightened risk” associated with servicing them.
There are a few risk management factors that help categorize a business as high risk, these include:
- If the business type is heavily regulated by the government
- Increased risk for chargebacks
- If it’s a new business
- Poor or no credit
These are the verticals and industries that are commonly labeled as high risk:
- Adult entertainment and dating services
- Casinos and online gaming
- Pharmaceuticals and drug providers
- Airlines, ticketing agents, and travel agencies
- Subscription services like magazines
Implications If You Are A High-Risk Business
Being labeled as a high-risk merchant means that you will have difficulty securing a traditional merchant account. Most banks will not take the risk to service these types of businesses.
As a result, high-risk merchants will need to seek a high-risk merchant account from a reputable provider that is well-versed in dealing with high-risk businesses.
There are a few downsides to opening up a high-risk merchant account. One of the most difficult barriers to overcome will be the significantly higher price tag for the privilege of processing debit and credit cards. Here are more things to consider:
- Costly Fees And Terms
Most high-risk merchant providers charge fees that are pricier than the average fees and offer stringent contract conditions.
- Scammy Practitioners
Predatory providers are always on the prowl, seeking high-risk merchants in dire straits. Prices offered are usually abusive and with unreasonable contracts. Ensure you have done extensive research and get a hold of their contracts to read the fine print. Better yet? Hire an attorney to help you wade through the industry jargon.
- Revenue Reserves
These reserves are created from the profits made by your company. The provider essentially holds your funds until the reserve balance is met. If your company were to fail, the provider still gets the money they are owed.
You Are Not Alone
Despite the challenges of running a high-risk business and contending with all of the high costs of acquiring a high-risk merchant account, you can rest assured that you will be supported by the right processor if you do your research.
There are a few things you can do now to ensure that you are not blindsided by an exploitative provider:
- Peruse The Company’s Website
A reputable provider worth their salt will have invested in a modern website, complete with the necessary information you need to make your decision. The copy should demonstrate their expertise in servicing high-risk businesses.
- Review Their Online Reputation
Check out consumer protection sites such as the Better Business Bureau (BBB) to get insightful information from other merchants who have conducted business with these providers. See how these companies handle complaints filed against them.
- Get A Hold Of Their Company Terms And Conditions
Get a copy of their terms and conditions or their merchant application. Study the fine print carefully. If there is a lack of information to be found, this can mean that their business practices are questionable.
Closing Thoughts
Being labeled as a high-risk merchant will mean that your rates will be higher and your contracts could be longer. However, if you partner up with an accomplished high-risk merchant account provider, you will have what it takes to take your business to the next level.