How To Qualify For A Merchant Account
Five Tips To Make Sure Your Merchant Application Gets Approved At The Lowest Rates
If your having problems getting approved for a merchant account, here are some things to consider that may make it easier!
Getting approved on a merchant account is a near necessity for most businesses and the approval process can sometimes be a daunting and frustrating situation.
Just like when applying for a mortgage or insurance policy, the approval process for merchant accounts involves completing a detailed application that needs to be reviewed and approved by a team of underwriters whose job it is to assess the risk involved and determine if the risk is appropriate for their portfolio.
Understanding how these underwriters assess risk can help you improve your chances of being approved at the best possible rates.
In short, underwriters are primarily concerned with only two things - Fraud and chargebacks. They want to make sure that the business applying is legitimate, is who they say they are, is unlikely to process fraudulent charges and disappear with the money, and is in a business that is unlikely to result in a high ratio (usually more than 1%) of chargebacks.
It's important to understand that, even if the charge is legitimate and results in the merchant winning a chargeback dispute, the simple fact that the charge is disputed is considered a chargeback!
With those issues in mind, here are five points to consider when going through the merchant application and approval process:
- Know Your Industry & The Merchant Service Provider - Many businesses are considered to be in high risk industries that may not be accepted by many merchant processors. If you're in a high risk industry and applying for a merchant account with a processor that doesn't offer high risk merchant accounts, you can be sure your application will not be approved. Before completing an application for any processor, you should be sure they will accept merchants in your industry, assuming the application package is strong enough.
- NEVER Lie On Your Merchant Application! - Besides the fact that lying on a merchant application is grounds for terminating the merchant account even if it does get approved; if you were an underwriter and were concerned about fraud, how likely would it be for someone to commit fraud if they're lying on their merchant application? Pretty likely, since by lying on the application they're already doing it! Additionally, be very wary of merchant companies that will change your industry classification from a high risk to a lower risk industry just to get your application approved. When the processor realizes your industry was misclassified, they will immediately terminate the account, which can be highly disruptive to any business in operation.
- Provide As Much Relevant Info As Possible - Most merchant applications will request, at minimum, a copy of an ID for the business owner, copies of bank statements for the prior three months, and a copy of a voided check. Since the underwriter wants to make sure the business is legitimate and is who they claim to be, make their job easy by providing as much info as possible that will help them do that. Make sure you provide a copy of a government issued identification like a driver's license or passport. Provide a utility bill in the name of the business at the address of the business, or a utility bill for the owner at the owner's address. If you have them, also provide things like articles of incorporation, a business license, tax returns, a financial statement or balance sheet, a formal business plan accurately describing the plan to sell the products/services listed on the merchant application, a website that describes the company selling the same products and services, and marketing materials that also match the products and services listed on the merchant application. Any certifications, copies of vendor contacts, and a voided check pre-printed with the business name along a reference letter of good standing from your bank listing the Company name, account number, and ABA routing number, as listed on the merchant application also help verify the business identity. Additionally, things like sales scripts, recording of customer calls, and pictures of facilites and inventory can also help strengthen a merchant application package. The more of this information you provide up-front, the easier it will be to get a quick approval and negotiate a good rate especially. This is especially important for new businesses and startups that lack strong business history.
- Only Ask For What You Need - If your business has never done more than $20,000 per month in revenues, it's unlikely you'll need approval for $200,000 per month and less likely that you'll get it. The MINIMUM amount of time for a consumer to issue a chargeback is six months after the date of sale, and in some states, can be up to two years after the charge. So, if you're asking to process $200,000 per month, the bank will assess it's risk at $1.2 Million ($200,000 x 6). This is very reasonable for any business that can show a history of processing $100,000 plus per month, but not so reasonable for a company that's never processed more than $20,000 in a single month. However, if you start at $20,000 and have good processing history, it becomes very easy to get a $20,000 limit increased to whatever is appropriate.
- Provide Current Processing Statements! - If you have current processing statements for the prior 3-6 months, you should send them with your merchant application. These processing statements can mean more to getting approved at a good rate than just about everything else in the application package combined! The prior merchant statements tells an underwriter that some company has already considered your business to be a good risk, they can see the current processing volume, chargeback history, and will see the rates they will need to beat in order to win the business.
The merchant application process is a necessary part of being approved for a merchant account. However, once approved, the application means very little and it's your processing history that will be reviewed later if/when you request an increase in volume of perhaps better rates or terms.
So, once approved and active with your merchant account, make sure you only use it to receive payment for the products and services for which you were authorized, never process charges on behalf of any other businesses, and manage your chargebacks by doing everything you can to avoid having them in the first place.
For more information on how to qualify for a merchant account, please contact us today!
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