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How to Get Approved for a Merchant Account

Try these strategies for improving your chances

Q: What do you consider a high-risk merchant? And if I am one, can I still get a merchant account?

A: There are many examples of high-risk merchants, such as telemarketers (inbound or outbound), Internet/e-commerce businesses, merchants in the travel and cruise industries, Internet auctions and businesses offering membership clubs.

But owning a high-risk business doesn't mean you won't be able to open a merchant account. It does mean, though, that it may be more challenging to set one up. Merchant account providers--banks and independent sales organizations--will also consider how long you've been in business, your credit history and any previous merchant accounts you've held with other processors.

Your length of time in business matters because merchant account providers want an assurance that you understand the business environment in which you operate, can identify the potential risks you face, know how to prevent or reduce fraud, and understand how to manage credit card acceptance. Regardless of risk, this kind of knowledge comes only with first-hand business experience.

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Your credit report will show how well you've repaid past loans, and if you've had any liens, judgments or bankruptcies filed against you. A favorable credit history will go a long way toward establishing your credibility as a prospective merchant.

And if you've had an earlier, well-maintained merchant account, it's a positive indicator of how you're going to deal with your new processor. Terminated merchant accounts will show up on the Member Alert to Control High-Risk Merchants file, also known as the Combined Terminated Merchant File. If your previous processor terminated your merchant account because you defaulted on it, or if you incurred too many chargebacks, this may negatively impact opening a future account.

To increase your merchant account eligibility, follow these tips:

  • Ensure a positive credit rating. Remove any past bankruptcies, late payments or liens from your credit report before you apply for a merchant account. To obtain your credit report, contact a credit reporting bureau such as TRW or a company that provides merged credit reports from major reporting agencies, such as Equifax, Experian or Trans Union. Write to them, explain that these matters have been cleared up and ask that they're removed from your credit report. Whether you own a small or large business, having a good credit rating will make a lasting and favorable impression with a transaction processor.
  • Be honest about previous merchant accounts, bankruptcies, liens or judgments. By acknowledging past financial challenges, you improve your credibility and may encounter one less barrier to opening a new merchant account. You cannot hide information that's part of the public record.
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  • Be willing to pay higher fees or accommodate special account requirements. If you need to abide by special restrictions or pay slightly higher fees in order to open a merchant account, by all means do it! It's worth it to provide your customers with as many noncash payment options as possible. It will help you generate revenues and stimulate impulse purchases.
  • Shop around for a credit card processor that best suits your needs. Talk to several different processors and don't be afraid to ask questions. Find out about:
    • The discount rate: The percentage of each transaction paid to the merchant account provider. If your monthly charges are less than a certain volume, the processor may charge a higher percentage.
    • Transaction fee: A flat rate charged for each transaction processed.
    • Equipment: Some examples include point-of-sale terminals, printers and peripherals. Also find out about installation costs.
    • Monthly minimum fees: These are minimum fees that the merchant account provider collects each month from the merchant if the merchant's discount rate and transaction fees don't add up to the monthly minimum specified on the original merchant application. It is usually about $25 per month if the monthly minimum volume isn't reached.
    • Reserve fees: If your credit history is in question, or if you own a new or high-risk business, you may be required to set up a reserve account, which protects the processor from any future losses. The reserve account is calculated as a percentage of your sales.
    • Chargeback fees: These are the costs charged by a processor to cover disputed charges.
    • E-commerce: If you're an e-commerce merchant, ask your prospective processor about the costs of storefront solutions that you must have to effectively operate your Web site, such as shopping carts, Web hosting, payment gateways, virtual terminals, virtual checks, databases for fulfilling orders, customer tracking, and a way to calculate tax and shipping charges.

Operating a high-risk business does not exclude you from being able to process credit cards. When you shop around for the right transaction-processing organization, go into it knowing what to expect. Follow the strategies outlined above, and the experience of opening a merchant account will hopefully go smoothly. And in the end, getting approved will put you on your way toward generating more revenues for your business.

Cardservice InternationalSenior Vice President of Sales John Burtzloff is in charge of sales strategy and execution and thus is responsible for managing all aspects of the company's marketing, communications, telesales, check guarantee, new accounts and sales support activities.


The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.

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