From the April 1997 issue of Entrepreneur

Like any good business owner, when John Greenlee's customers talk, he listens. "We were doing festivals, and customers asked if we took credit cards," says Greenlee, who sells leather handbags and accessories at festivals, expos and home shows. "I started keeping count, and at six different events, [a total of] 25 people asked. That's 25 customers I lost because they didn't have cash, and I'm leery about out-of-state checks."

The solution to his problem seemed simple--establish a merchant credit card account. Companies offering merchant status seemed plentiful, and Greenlee found one whose program sounded good. But when he read the contract, he found some glaring omissions the sales representative had neglected to mention: "I had to sign a four-year contract," he says, "and if I didn't do at least $2,500 a month in [credit card] sales, I would have to pay an additional charge."

So Greenlee approached Pittsburgh-based Mellon Bank, where he had his personal and business accounts. The bank asked for proof of his fictitious business name filing, a copy of his product catalog and his return/refund policy; they also did a credit check. All this presented no problem for Greenlee. There was only one hurdle the Glenside, Pennsylvania, entrepreneur could not overcome--the request for two years of business tax returns.

"I had just started my business [in May 1996] and didn't have these," says Greenlee, who was eventually turned down. The story was the same at another bank he contacted.

Debra Rossi, senior vice president of electronic payment solutions for San Francisco-based Wells Fargo Bank, offers insight on the denial. The first thing a merchant needs to understand about accepting credit cards is that the bank views this as an extension of credit, explains Rossi.

"When we give you the ability to accept credit cards, we are giving you the use of funds before we get them. By the time the money actually arrives in the cardholder's account, it could be another 30 days," says Rossi. There is also the real concern that if a company goes out of business before merchandise is shipped to customers, the bank will have to absorb any losses that might result.

Overcoming Hurdles

When you go to a bank to open a merchant card account, there are some basic items you should be prepared to present, says Steven Citarella, vice president of credit policy for First Data Merchant Services Corp., an independent credit processing service in Melville, New York, which has formed alliances with 11 major banks.

"While requirements vary from bank to bank, in general a business does not have to be a minimum size [in terms of sales]. The longevity requirement varies from bank to bank: Some require nothing, others as much as three years," says Citarella.

What you will need in all cases is to provide bank and trade references, estimate what kind of credit card or debit card volume you expect to have, and what you think the average transaction size will be. Some banks also require financial statements.

Rossi says the bank's goal is to find out if your business is profitable and if it will be around for a long time to come. "We approve a lot of start-up businesses, and, in those cases, we rely on the personal financial picture of the business principals," says Rossi. "We look at tax returns and where they got the money to start. We'll also look to see if you're a customer of Wells Fargo and look at your relationship with Wells."

Wells Fargo evaluates a business's product or service to see if there might be the potential for a lot of returns or customer disputes. Other factors that will strengthen your package in a bank's eyes, continues Rossi, include demonstrating your longevity in the industry, presenting your marketing plan to show who your customers are and how you will reach and sell to them, and giving your Internet address, if you have one, so officials can check out your site.

The approval process can be a major hurdle for businesses that banks consider risky. According to Citarella and Rossi, these include companies where a high percentage of business is done by phone or mail, as well as industries where there is a delay between the time merchandise is paid for and received by the consumer.

While being considered a risky business is a key reason a bank may deny your merchant card account request, the most common reason for denial is poor credit.

Rossi says Wells Fargo has established a procedure to enable otherwise qualified high-risk entrepreneurs to obtain credit card acceptance privileges. "We approve you [provided you put up] security such as a certificate of deposit, which you keep at the bank for one year."

Where To Go

Once you understand how the merchant card approval process works, the next step is finding a place to apply. Look for a credit card processor in your own backyard, advises William Murray of Network Consulting Service. "Your banking relationship is what you've got going for you if you deal with a commercial bank," says Murray, whose Sterling, Virginia, company publishes a newsletter on the credit card industry.

If your bank, like Greenlee's, turns you down, consider independent companies. After being turned down by two big banks, Greenlee went to Commonwealth Bank, a 55-branch institution based in Norristown, Pennsylvania. By this time, he was disillusioned with the whole process and about to give up. "They told me they didn't do merchant card processing themselves but could refer me to Credit Card Processing Services, who did it for them. All I needed to do was open a business account at the branch," recalls Greenlee.

In addition to proof of business ownership and a credit check, Greenlee showed his product catalog and verbally explained his marketing plan. He got a rush approval in five days with cheaper rates and no long-term contract.

While independents, which can be found in the Yellow Pages, often give the best rates because they have lower overhead, Murray cautions their application process tends to be more time-consuming, and start-up fees are sometimes higher. Going directly to companies like American Express and Discover could be cheaper, he says.

When you find a processor who seems willing to work with you, there are a number of fees you can expect to pay--all of which are negotiable except for the discount fee.


  • start-up fees from $50 to $200


  • equipment costs of $250 to $1,000, depending on whether you lease or buy a handheld terminal or go electronic (Murray advocates purchasing outright)


  • monthly statement fees of $4 to $20


  • transaction fees of 5 cents to 50 cents per purchase


  • the discount rate--the actual percentage you are charged per transaction based on projected card sales volume, the degree of risk and a few other factors (the percentage ranges from 1.5 percent to 3 percent; the higher your sales, the lower your rate)


  • chargeback fees of up to $30 per return transaction


  • other miscellaneous fees, including a per-transaction communication cost of 5 cents to 12 cents for connection to the processor, a postage fee for sending statements, and a supply fee for charge slips

Charged Up

Although he has not done a formal survey, Greenlee estimates his sales have jumped 20 percent to 25 percent since he began accepting credit cards. He thinks it's something every entrepreneur should explore but offers these tips: "Go to a smaller bank. Also have a game plan; don't go into it half-cocked."

Rossi stresses remembering the process is an extension of credit. Even if they don't ask for it, give the bank your financial and marketing information, and make sure your product has good or proven selling potential.

If you can pull all these pieces of the puzzle together into an attractive financial package, then it's just a matter of time until you hear the two words that will bring a smile to your face: "Charge, please."

Homebased Business Conference

The rocky mountain Home-Based Business Association hosts the Fourth Annual National Home-Based Business Conference May 4 to 6 at the Hyatt Regency Hotel in Beaver Creek, Colorado.

Targeting homebased entrepreneurs, educators and service providers, the event focuses on new technologies for the millennium. Among the topics to be discussed are marketing crafts on the Web, using shareware to create a Web presence, and the legal issues involved in doing business on the Internet.

In addition, the conference will offer basic workshops on topics such as how to cope with isolation, setting up a homebased business, selling globally and marketing.

The cost to attend is $150 ($175 after April 1); interested individuals should register at least two weeks in advance. For more information, call (303) 863-9506.

Contact Sources

Commonwealth Bank, (610) 313-1752;

First Data Merchant Services Corp., (516) 843-6000;

John Greenlee, c/o J.W.G. Enterprises Unlimited, 400 Twickenham Rd., Glenside, PA 19038, (215) 886-0538;

Network Consulting Service, 45344 Gable Sq., Sterling, VA 20164, (888) 948-2739;

The Rocky Mountain Home-Based Business Association, fax: (303) 863-9507, ndana@csn.net;

Wells Fargo Bank, (510) 746-4135.