It’s an unfortunate fact that 8 out of every 10 start-up businesses fail within their first eighteen months in business. Granted, failure should never deter the spirit of a true entrepreneur as it is a natural road block on the path to success. It took Thomas Edison more than 10,000 attempts to create the light bulb and Henry Ford bankrupted two automotive companies before achieving the success that is Ford Motor Company. If you have poor credit, a bankruptcy, or are in a weak financial position, it doesn’t mean you can’t achieve your goals and dreams of owning and operating a successful business. You simply need to understand what it takes to get the payment processing services you need in order to succeed.


Merchant Accounts are Similar to a Line of Credit

Poor credit affects one’s ability to do almost everything these days from purchasing or renting transportation, housing, or applying for a credit card. Such is the case when you want to accept more than cash as a payment option within your business. A merchant account is similar to a line of credit because you are receiving advanced payment as promised by the consumer and the liability lies in the fact that you can run payments up to your monthly approved dollar volume and those payments can be disputed usually up to six months after that date of the purchase transaction. If a merchant decides to run felonious transactions, ships defective products, delivers bogus service, goes out of business, or disappears overnight there is a high likelihood chargebacks will start to pour in. It is the merchant service provider who is responsible for all the costs associated with the dispute resolution of chargebacks and it adds up quickly.


How Credit and Financials Relate to Merchant Accounts

Most merchants with low risk retail businesses where the card and card holder are present to sign for their purchase do not have to worry about a risk underwriting process. Those most vulnerable are either high risk merchants. The high risk designation is assigned to a merchant when:

  • The business or signer have a weak financial position, or
  • The signer has poor credit.

High risk merchant service providers take on liability to approve accounts that have weak financials or less than stellar credit. This is part of the reason why the underwriting process for high risk merchants is more thorough than that of low risk merchants. Because there is a greater likelihood the merchant service provider can lose money by approving your business; they want to see that the credit of the signer is good and that the business and/or signer have good financials when compared to the monthly dollar volume they are requesting to be approved for. In this way, merchant service providers can make a reasonable determination as to whether they will be able to recoup losses should the business of the merchant in question fail.


Going Forward With Obtaining a Merchant Account

In order to get through the application process in seamless fashion with the highest chance for approval; merchants with poor credit or weak financials should be prepared to handle what a high risk merchant service provider could potentially tell them. In order to do that merchants should be are of some things:

  1. Be Realistic. Most entrepreneurs have a grandiose vision for their business and expect to make money hand over fist but the reality is that most business start off slow and gain traction over months and years of dedicated, hard work, and a relentless determination to succeed. So when a merchant service provider asks what monthly dollar volume you expect to process; give them a conservative number that is in-line with you current income and liquidity whether that’s business or personal.  For example, if you give your merchant service provider an expected monthly processing volume of $50,000.00, but only have $2,500.00 in the bank and no processing history to back up your expectations; you most likely will be declined. If you ask for $5,000.00 or $10,000.00 you have a greater chance for approval. You can always request higher monthly volume after you’ve been approved and your merchant service provider will analyze your processing to determine what a feasible and reasonable increase is.
  1. Be Prepared. This is particularly important for high risk merchants or those that are facing a time-sensitive situation. You have to supply supporting documentation in addition to the application for the underwriting process. Some of those documents could be:
  • Recent three months of business and/or personal bank statements
  • One to Two years of business and/or personal tax returns
  • Recent three months of processing statements (if applicable)
  • Tax ID, SS4 form
  • Void check or bank verification letter from the account intended for use
  • Identification
  • Business License (if applicable)
  • Articles of Organization
  • Profit & Loss Statement (if applicable)
  • Audited Business Financial Records (if applicable)


You may not need some of these things as you should only supply what is asked of you; however, you should be ready to turn these documents over to the merchant service provider in order to avoid unnecessary delays.

  1. Have a Guarantor. Try to find a guarantor ready to sign for you. It’s best to have someone that is materially involved in the business or a close friend or family member that has strong credit and financials. This guarantor must also be ready and willing to furnish personal financial documentation as proof they are a suitable guarantor.
  1. Accept a Reserve. At times merchant service providers will ask that a merchant signs for and accepts a reserve. Reserves are basically a percentage of monthly processing dollar volume held in an escrow account as a safeguard against potential loss. Reserves are sometimes necessary in order to get approved. Granted this money can be held up to six months after you close a merchant account because of chargeback rules, but if you process cleanly this rarely happens and if you process cleanly while the account is open; you can ask your merchant service provider to do a review to reduce or eliminate some or all of the reserve being held. However, you want to make sure you have at least 3 to 4 months of consistent, clean processing history before you ask. Processing clean means not having a single chargeback.

There are merchant service providers out there like Painless Processing that work with high risk merchants and start-up businesses. It’s our area of expertise and we have specialized staff on-hand to deal with all types of difficult, high risk payment processing situations. Contact us today to learn more about what we can do to make a hard situation a little more painless.


  High Risk Merchant Account Solutions