Will You Qualify For A Merchant Account?
DID YOU KNOW…?
Not all business owners can qualify for merchant accounts. This is true. Not everyone is accepted to process credit cards. There are many factors that can contribute to a merchant being declined on their merchant account application.
This is where many example business plans have failed budding entrepreneurs. I found from firsthand experience that many business experts and business planning examples provided by banks, government agencies, small business magazines, etc. have very often forgotten to address and allot a spot for payment processing. It’s like these example business plans were created prior to the 1951 before there was any such thing as debit and/or credit card processing.
It’s a shame because so many new businesses fail to address this extremely important administrative task early enough. About 25% of all people that contact me tell me their business is newly opened or opening within a week, and they assumed opening a merchant account would take no time at all.
The process of setting up a merchant account can take anywhere from five business days to two weeks (sometimes even longer) depending on the provider and type of merchant account required. Here are the typical steps:
· An application needs to be filled out. This document is usually 4-12 pages of dense fine print that would take a team of lawyers several weeks to translate into everyday plain English.
· The application usually requires several pieces of supporting documentation: Owners’ IDs, Business License or Incorporation Papers (some type of POE), void cheque (must not be starter cheque), and so on.
· If it’s an internet merchant account then you also need to have all the requisite “legal” information ready on your website: things like your privacy policy, terms of use, shipping policies, refund policies. Also, you MUST have your SSL certified shopping cart up and running.
· If you are planning on processing higher sales volumes (20K/month or more) then you may be requested to provide financials and/or previous merchant account statements to verify those sales volumes.
Once the above is done, only then will your application be accepted by the underwriters. The underwriters then comb through all the information, looking for inconsistencies and flaws to find a reason to deny your application. It is their job to prevent loss of profits due to merchant fraud or loss of profits from high risk business categories.
Risk indicators that underwriters take into consideration include:
- Type of business
- What exactly you sell
- Average ticket price
- Monthly sales volumes
- How you process (online, phone, mail-order, retail, etc.)
- Your personal credit score
- Signs of any history of fraud, etc.
This whole process typically takes two to 5-7 business days, assuming you submitted a clean application.
Even once you hear back from the underwriters on your status of approval you may find out (and this is a surprise to most merchants) that there may be additional terms (such as a deposit or rolling reserve or delayed funding conditions) that you will have to agree to before they officially approve an account for your business.
How would like to find out, a mere week before you open your business, that your card processor will approve your account only if you lay down a deposit equal to one month’s worth of sales? Let’s say you expect your monthly sales to be $20,000. Not many merchants have planned in their budgets a 20K deposit for payment processing.
Would that be a shock? From first hand experience, I know it certainly would be.
Many merchants are under the assumption that getting a merchant account is much like applying for a credit card. Nothing can be further from the truth.
A merchant account provider is essentially factoring you money in advance while they wait 30, 60 days-if ever-to collect off the consumer. On top of that they have to make sure that taking your business on as a client is risk averse to “high chargebacks,” potential credit card fraud, etc.
Unfortunately, at this time entrepreneurs that require payment processing do not have any other alternatives to this system. Therefore most business owners are currently held hostage by whatever terms these credit card processing companies put forth.
I am sure you are starting to see why it is so important for payment processing to be a major aspect of business education! Hopefully it’s becoming crystal clear how crucial it is to have a good merchant account broker to guide you through the complexities of merchant accounts.
I have seen people come to me days after being open for business to find out they were declined on their application for a merchant account with one of the big financial institutions. Often, I have had no trouble getting these very same merchants approved, but it is terrifying for them to find out they may not qualify for merchant accounts. These poor merchants lay awake at night wondering how they will succeed when basically 65% of the country will have difficulty paying them. Imagine dropping thousands of dollars (often tens of thousands of dollars), possibly every penny you have, on your business dream only to find out you can’t qualify for a credit card processing account? This is a major nightmare I would wish upon no one.
This is NOT the merchant’s fault.
There is simply not a ton of great information out there (until now!) on Canadian Merchant Accounts. I think the main reason so many applications are declined is simply because the application was done by the merchant themselves and/or by an unknowledgeable sales rep, resulting in a poorly designed merchant account application. When this flawed application crosses the underwriter’s desk, inconsistencies are found and it is sent back denied.
Most underwriters refuse to give the reasons for denial. The last thing they want is us brokers to know what it is they are looking for, because they know we will then submit applications that could ruin their chances for catching risk. It would be like Google giving away the algorithm to rankings on Google: if people knew exactly what it was then they would just SPAM the system. Once that happens it loses all value. It’s a similar situation here.
The only reason I know so much now is because of experience: submitting thousands of applications and using the good old-fashioned method of “trial and error.” I have reverse engineered to the best of my ability to understand what it is that gets applications approved with ease. I understand what information to share, and what not to share. However, even with all my experience I can not guarantee 100% approval. But I do have a decent approval rate for any business that does not fall under the “high-risk” umbrella.
My company’s approval rate is 97%-even with merchants who have poor personal credit challenges. Which brings be to the second reason why a merchant can be unapproved for a merchant account: POOR PERSONAL CREDIT. Having poor personal credit is considered high-risk to a credit card processor; but there are ways around issues like this. I personally have access to a provider that will accept a co-signer (with strong credit of course) so those merchants who have had a run of bad luck with their personal credit can still have a chance at establishing a merchant account for their business. This is a huge benefit because very few major card processors offer the option to use a co-signer.
It’s going to get worse before it gets better…
Click here to learn how to avoid being scammed by deceitful merchant account marketing tactics…
