Charging Ahead Opening a merchant credit card account is easier than you think--once you understand the process.

Like any good business owner, when John Greenlee's customerstalk, he listens. "We were doing festivals, and customersasked if we took credit cards," says Greenlee, who sellsleather handbags and accessories at festivals, expos and homeshows. "I started keeping count, and at six different events,[a total of] 25 people asked. That's 25 customers I lostbecause they didn't have cash, and I'm leery aboutout-of-state checks."

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

So Greenlee approached Pittsburgh-based Mellon Bank, where hehad his personal and business accounts. The bank asked for proof ofhis fictitious business name filing, a copy of his product catalogand his return/refund policy; they also did a credit check. Allthis presented no problem for Greenlee. There was only one hurdlethe Glenside, Pennsylvania, entrepreneur could not overcome--therequest for two years of business tax returns.

"I had just started my business [in May 1996] anddidn't have these," says Greenlee, who was eventuallyturned down. The story was the same at another bank hecontacted.

Debra Rossi, senior vice president of electronic paymentsolutions for San Francisco-based Wells Fargo Bank, offers insighton the denial. The first thing a merchant needs to understand aboutaccepting credit cards is that the bank views this as an extensionof credit, explains Rossi.

"When we give you the ability to accept credit cards, weare giving you the use of funds before we get them. By the time themoney actually arrives in the cardholder's account, it could beanother 30 days," says Rossi. There is also the real concernthat if a company goes out of business before merchandise isshipped to customers, the bank will have to absorb any losses thatmight result.

Overcoming Hurdles

When you go to a bank to open a merchant card account, there aresome basic items you should be prepared to present, says StevenCitarella, vice president of credit policy for First Data MerchantServices Corp., an independent credit processing service inMelville, New York, which has formed alliances with 11 majorbanks.

"While requirements vary from bank to bank, in general abusiness does not have to be a minimum size [in terms of sales].The longevity requirement varies from bank to bank: Some requirenothing, others as much as three years," says Citarella.

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

Rossi says the bank's goal is to find out if your businessis 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 businessprincipals," says Rossi. "We look at tax returns andwhere they got the money to start. We'll also look to see ifyou're a customer of Wells Fargo and look at your relationshipwith Wells."

Wells Fargo evaluates a business's product or service to seeif there might be the potential for a lot of returns or customerdisputes. Other factors that will strengthen your package in abank's eyes, continues Rossi, include demonstrating yourlongevity in the industry, presenting your marketing plan to showwho your customers are and how you will reach and sell to them, andgiving your Internet address, if you have one, so officials cancheck out your site.

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

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

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

Where To Go

Once you understand how the merchant card approval processworks, the next step is finding a place to apply. Look for a creditcard processor in your own backyard, advises William Murray ofNetwork Consulting Service. "Your banking relationship is whatyou've got going for you if you deal with a commercialbank," says Murray, whose Sterling, Virginia, companypublishes a newsletter on the credit card industry.

If your bank, like Greenlee's, turns you down, considerindependent companies. After being turned down by two big banks,Greenlee went to Commonwealth Bank, a 55-branch institution basedin Norristown, Pennsylvania. By this time, he was disillusionedwith the whole process and about to give up. "They told methey didn't do merchant card processing themselves but couldrefer 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 hismarketing plan. He got a rush approval in five days with cheaperrates 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, Murraycautions their application process tends to be more time-consuming,and start-up fees are sometimes higher. Going directly to companieslike 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 arenegotiable except for the discount fee.

• start-up fees from $50 to $200

• equipment costs of $250 to $1,000, depending on whether youlease or buy a handheld terminal or go electronic (Murray advocatespurchasing 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 pertransaction based on projected card sales volume, the degree ofrisk and a few other factors (the percentage ranges from 1.5percent to 3 percent; the higher your sales, the lower yourrate)

• chargeback fees of up to $30 per return transaction

• other miscellaneous fees, including a per-transactioncommunication cost of 5 cents to 12 cents for connection to theprocessor, a postage fee for sending statements, and a supply feefor charge slips

Charged Up

Although he has not done a formal survey, Greenlee estimates hissales have jumped 20 percent to 25 percent since he began acceptingcredit cards. He thinks it's something every entrepreneurshould 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 ofcredit. Even if they don't ask for it, give the bank yourfinancial and marketing information, and make sure your product hasgood or proven selling potential.

If you can pull all these pieces of the puzzle together into anattractive financial package, then it's just a matter of timeuntil 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 theFourth Annual National Home-Based Business Conference May 4 to 6 atthe Hyatt Regency Hotel in Beaver Creek, Colorado.

Targeting homebased entrepreneurs, educators and serviceproviders, the event focuses on new technologies for themillennium. Among the topics to be discussed are marketing craftson the Web, using shareware to create a Web presence, and the legalissues involved in doing business on the Internet.

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

The cost to attend is $150 ($175 after April 1); interestedindividuals should register at least two weeks in advance. For moreinformation, 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, 400Twickenham Rd., Glenside, PA 19038, (215) 886-0538;

Network Consulting Service, 45344 Gable Sq., Sterling, VA20164, (888) 948-2739;

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

Wells Fargo Bank, (510) 746-4135.