5 Reasons Businesses Get Denied a Merchant Account
Having a merchant account is crucial for businesses that want to accept credit card payments. Unfortunately, there are some reasons why businesses get denied a merchant account. Knowing what these reasons are and how to avoid them can help ensure that your business gets approved. In this blog post, we’ll look at five of the main reasons businesses get denied a merchant account and provide tips on how to prevent them.
1) Lack of credit history
One of the most common reasons a business might get denied a merchant account is a lack of credit history. This can be especially difficult for start-up companies that have yet to establish their credit with lenders and payment processors. Without an established credit record, the risk of lending money to an unknown entity is higher for a payment processor.
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For this reason, it’s important to build your business credit before applying for a merchant account. You can do this by opening accounts with reputable suppliers and making timely payments, taking out business loans, or getting a business credit card. Establishing your credit history will make it easier to get approved for a merchant account, as payment processors can use your credit report to assess the risk of doing business with you.
2) Unclear business purpose
One of the main reasons businesses get denied a merchant account is due to an unclear business purpose. When applying for a merchant account, the payment processor needs to understand what your business does and what types of products or services you are selling. If you are unable to provide a clear explanation of the type of business you have and the purpose of the account, then your application will be rejected.
To avoid this problem, it’s important that you provide accurate and detailed information about your business when submitting your application. You should include a description of the products or services you offer, how customers pay for them, and any other pertinent information that is needed to clearly define your business and its purpose. Additionally, make sure to provide accurate contact information for yourself and any other individuals associated with the business. This will help ensure that your application is properly reviewed and approved.
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3) Poor personal credit
Personal credit can be a major roadblock for businesses looking to get approved for a merchant account. Banks and payment processors use personal credit scores as one of the main criteria for approving a merchant account. Poor credit scores can be a sign that the business is at high risk and likely to not be able to meet its financial obligations.
Business owners should check their own credit score before applying for a merchant account to make sure they will have a good chance of being approved. It’s also important to keep in mind that many banks and payment processors look at the credit of any owner or partner that has more than a 25% stake in the business. So, if you are part of a partnership or have co-owners, their credit score will affect your chances of being approved as well.
Fortunately, there are steps you can take to improve your personal credit before applying for a merchant account. Paying bills on time, reducing existing debt, and using credit cards responsibly are all ways to improve your credit score and make your business look more appealing to banks and payment processors.
4) History of chargebacks
When applying for a merchant account, many credit card processors will take into account your business’ history of chargebacks. A chargeback is when a customer makes a complaint about a purchase and reverses the payment, meaning the business pays for the goods or services even though they never received the money. This can be a major problem for businesses, especially if it happens often.
If you have a history of chargebacks, it can be difficult to get approved for a merchant account. Credit card processors want to make sure that the businesses they are working with can process payments in an efficient and safe manner, so a history of chargebacks can be a red flag. To help avoid this issue, make sure to always provide clear and accurate information to customers and make sure your return policies are clearly stated. Additionally, make sure to have a fraud detection system in place to help prevent chargebacks before they happen.
5) High-risk business
If you are running a business in a high-risk industry, you may find it more difficult to get approved for a merchant account. High-risk businesses typically include those dealing with adult content, firearms, gambling, or those that sell expensive products with a short lifespan. If your business falls into one of these categories, you may need to search for a specialized processor that works with high-risk industries.
Fortunately, there are many solutions for businesses in high-risk industries, such as acquiring banks that specialize in high-risk merchants, payment processors with specialized services, and third-party payment solutions. However, you should be aware that these accounts come with higher fees and more stringent requirements than those available to lower-risk businesses.
When applying for a merchant account as a high-risk business, be sure to disclose all relevant information upfront. This will increase the likelihood of being approved, as well as avoid any additional fees and penalties down the line. You should also research the processor thoroughly to ensure they have experience working with similar businesses and understand the risks associated with your industry.
By taking these steps and finding the right payment processor, you can successfully secure a merchant account for your high-risk business.