How To Get Approved for A Merchant Account: Surefire Tips
The whole process of getting a merchant account is straightforward and is generally easy. However, it’s not always guaranteed that your application for an account is going to be approved by the bank. This is particularly true for many high risk industries. To get started, you need to understand what a merchant account is and how to get merchant account approval when applying for one.
What is a Merchant Account?
When setting up a merchant account, you are setting up a storage account for the funds and profit you earn through online transactions. It serves as a “catch basin” which collects all transferred amount and eventually transmits the money to your designated business bank account, according to each currency. The frequency of fund transfer can be set to daily or weekly basis, depending on your contract agreement.
There are high-risk merchant account providers that issue accounts for businesses and there are companies as well that process every transaction using their own merchant account on your behalf. This account is designed to protect your business from potential loss, as many major credit card companies have a strict policy on returning the money back to a cardholder in case of chargebacks. One common instance of a chargeback is when the service or product promised is not as described or did not deliver.
For this reason, banks and financial institutions thoroughly screen applicants and their background. Take note of the following tips to guide you on how to get a merchant account.
- Do Your Homework
As many people say, knowledge is power. Take time to do your research on the type of merchant account you need, as well as the merchant account requirements. You would need to know if the industry your business falls in is considered high risk and narrow down your search from there. You don’t have to be well-versed in all types of accounts. What you need is enough information to understand the details that merchant account providers will discuss with you. On top of that, you would need to do a search on local providers who can potentially be your next provider.
- Be Transparent with Your Credit History
Account providers will check every detail of your credit history. There is nothing you can hide as banks have access to credit bureaus and are connected to other financial institutions in doing thorough background checks, called KYC or Know-Your-Customer process.
Make sure that you have your financial statements in order to make yourself more credible to merchant account providers. Request a copy of your credit report and review it for any mistakes. Resolve any issues you find with its corresponding agency. Clear up any previous late payments, past bankruptcies, and other liens in your report. You can write a letter to your credit report agency and explain that everything has been cleared up already, so they can remove it from your report. You can also ask banks for a clearance or a certificate of full payment to show you have settled your debt/s.
- Prepare Business Documents and Data
Business documents are very important when trying to get merchant account approval on an application. Gather data such as:
- Transaction volume
- Number of refunds
- Chargeback percentage
This might mean extra effort on your end, but it increases your chance for guaranteed merchant accounts. Break your statements to a monthly basis and present at least six months of documents. This will make your business look more credible to when applying for merchant account approval.
- Keep an Open Mind to Special Conditions
As mentioned, going the extra mile might just be worth your effort especially if you are seeking high-risk merchant account approval. Providers sometimes give special restrictions depending on the business type. You have to remember, however, that special conditions also come with extra fees. Review the special account you are offered and weigh in its pros and cons. Remember that it’s worth the penny if it means generating more profit for your business. It can be slightly higher than the usual rate, but it gives you a chance to open a merchant account that’s going to be advantageous for your company.
- Find the Best Merchant Account Processor
What works for one business might not work for your own. This is what you have to keep in mind as you go through every merchant account provider available. Talk to several underwriters and see what they have to offer. Take note of the conditions they have and the merchant service merch fees that you are obliged to pay them. For example:
- Monthly minimum fees – providers will set a minimum volume every month that you have to reach. In case you don’t meet this, due to any circumstance, the provider will collect this monthly fee. The charge can be as low as $25 and can go higher depending on your provider.
- Reserve fees – this is amount that is collected by merchant providers to protect themselves as well. This can be a fixed reserve fee that is regularly deducted from you until the ceiling amount is reached or it can also be an up-front reserve based on your transaction volume. Another type of reserve fee is the rolling reserve in which the provider continuously charges you for a certain period and gradually releases the amount after the term expires.
- Chargeback fees – any chargeback claim can be deducted from your account. It will vary from one international merchant account to another.
- Transaction fees – check for a provider’s rate for every transaction made. Choose a processor with a favourable transaction fee.
- Equipment available – some processors won’t charge you with installation fees for the Point-Of-Sale (POS) terminals, web hosting, virtual terminals, payment getaways, customer tracking, and other peripherals.
- Create A Convincing Cover Later
Like any other application, it wouldn’t hurt to write a compelling cover letter. Make sure that you highlight the pressing points that the merchant provider will most likely review in your application. You have to convince them that your business is a risk worth taking for them.
- Review Your Merchant Account Agreement
Lastly, review the contract before you sign above the dotted line. Check any other extra costs that is written on the fine print as well as potential hidden merchant account fees that can be collected from you. You can always call for legal help if you have doubts with the agreement. As soon as you get your approval, review the terms and conditions to avoid problems down the road. Aside from legal liabilities, troubles with merchant providers can also cost you future opportunities with other processors.