Poor Credit Merchant Account
Here is the good news… even if you have poor or bad credit (even had a bankruptcy) it is possible to still get approved for a merchant account. You may need a co-signer and/or end up paying more in MDR (merchant discount rates) fees, but there is almost always a way.
Why and how poor credit or bad credit can affect your approvals on a merchant account application.
Declined… what a negative word. Nobody wants to ever hear the word declined. There’s not much positive that can be associated with this word. You may expect to hear it on a mortgage application or a credit card application or maybe even if you’ve asked someone out of on a date. But you never expected to hear it on a merchant account application. I mean, you’re applying for a means to accept payments. You’re taking money and putting it in your bank account, right? The banks are getting the deposits, which is what they want, right? So why did your Acquirer decline you?
Well, the reality is, the application of a merchant account is very closely related to a credit application. How, you ask? You’re not asking for money or a loan. Or are you?
The way Acquirers view every merchant application is as if the merchants themselves are asking for credit. The reason being is the process by which payments are accepts and who is ultimately liable for transactions. The best way to explain this through an example.
Take for instance, the travel industry. This industry is considered one which has the highest risk. And the reason for this is often referred to as Future Delivery. Future Delivery is the time that lapses between the customer paying for a purchase and the time they actually receive the goods or services they purchased. Typically, if you’re planning a flight, you’re not buying your airline ticket at the airport and then boarding the plan. Often, there could be weeks, sometimes months that can pass before you actually go on your trip. And a lot can happen during that time period. For example, an airline going out of business. If the airline, the merchant in this scenario, goes out of business, what happens to the cardholders who have purchased tickets to go on a trip that now won’t happen? They call their credit card companies and issue a chargeback. Chargebacks are disputes initiated by the Issuing banks of the credit cards to the Acquirers of the merchants. The Acquirers would then go back to the merchant to request additional information from the merchant to respond to the Chargeback. If the Chargeback cannot be won in the merchant’s favour, the Issuer debits the Acquirer who will in turn debit the merchant. But what if the merchant is out of business? The Acquirer is then left on the hook for the transaction.
Therefore, Acquirers take the credit worthiness of merchants very seriously. If you have bad credit or no credit, the Acquirer needs to consider what the likelihood of your business shutting down and potentially leaving them liable for transactions. Of course, the longer the future delivery, the more difficult it would be to get approved. And while being a retail outlet accepting card present transactions could make it easier to get approved, without a good credit history, you can expect any Acquirer to be weary of approving your application. Good credit equals a stronger likelihood of a merchant staying in business because you will be more likely to pay for things like product, rent, utilities and bills. And no credit is just as bad as having bad credit… without a credit history, there is still no viable way for an Acquirer to assess your application. And no assurances that you will be able to sustain your business.
So do yourself a favour and make sure all your finances are in check before applying for a merchant account. If you think there’s a chance you could be declined, be prepared to make additional or alternate arrangements for your application.
If you find yourself with poor or bad credit and not getting approved for a merchant account, then contact us here. We can most likely help you get approval on a merchant account even if you have the worst credit in the world as long as you can get a co-signer and as long as your business model is not on the restricted list or has been added to the TMF List.
