Times are hard, and life has a way of throwing curveballs at the worst possible moments. The result can be a poor credit history that is now dogging you in every aspect of your life, including your business dealings. But don’t despair; it is possible to get a merchant account even if your credit history is rocky. 

Why your poor credit score affects your merchant account application.

Not surprisingly, payment processors want to partner with businesses that offer the lowest possible risk. If they suspect that a business is more likely to experience fraud or negligence, they tend to shy away. A poor credit score suggests that those in control of the operation are not well-equipped to manage it properly.

Factors affecting high-risk status.

If you have not yet applied to get a merchant account but know that your credit history is bad, you may be wondering how you will fare. The following factors can contribute to your business being deemed as high-risk.

• History of bankruptcy.
• Outstanding liens that will prevent lenders from using those assets as collateral.
• Inconsistent income.
• Unresolved debt.
• Doing business in certain industries such as adult entertainment, gaming, or cannabis.

If you have reason to believe you will be rejected by a traditional lender or if you have already been declined because of your history, the good news is that you can apply for a high-risk merchant account that enables you to process payments in spite of your credit history.

What to look for in a high-risk payment processor.

Not all merchant account providers are created equal. Although your credit history might make some lenders wary, that doesn’t mean you should put up with unreasonable costs or contractual expectations. Ask the following questions.

• Can the company demonstrate that it partners with other high-risk businesses?
• Are fees transparent? You can expect to pay slightly more per transaction because of your high-risk status. However, you should have a complete idea of all charges you will be required to pay from the outset. While some of these are non-negotiable, you may have leeway with others. Therefore, be sure you compare among several companies before making your final choice.
• Are there any reserves, volume restrictions, or other limitations? Some companies restrict your ability to have unlimited payment processing. They may also require that you put down a reserve deposit before you can get the account.
• What are the contractual obligations? If possible, you should steer clear of companies that lock you into protracted agreements with stiff early cancelation fees.

Applying for a bad credit merchant account.

There are several steps that you must take when applying for any merchant account.

• After obtaining all necessary business licenses, apply for a standard business bank account.
• Choose the payment methods you will be accepting.
• Create and advertise your refund and terms of service policies.
• Ensure that you are PCI compliant.
• Gather documents showing your business’s age, size, and sales volume.
• Apply for a merchant account.
• Provide six months of processing and bank statements to the underwriter.
• Shop around for the company that provides the lowest processing fees as well as the features your business needs.

When you submit an application to a high-risk payment processor, you can also expect additional scrutiny. Most likely, you will be asked to furnish the company with additional financial documentation and may also be required to open a rolling reserve account. This pool of money is only tapped into by the lender if you fail to keep up with your payments.

Another possible merchant account provider.

If you already have a good relationship with a bank, they might be willing to provide you with a merchant account in spite of your blemished credit history. Furthermore, the associated fees and startup costs might be lower if you already have a checking account in that financial institution. You can’t go wrong by simply asking your bank manager if they would be willing to consider you for a merchant account.

While bad credit is something that should be avoided whenever possible, it is an unfortunate fact of life for many people in these challenging economic times. Perhaps for that very reason, there is a wide variety of high-risk merchant account providers from which you can choose as you work to get your business started. A reputable company with high-risk business experience can be a valuable partner throughout the launch, development and expansion of your company. In time and with savvy money management and business practices, it is likely that you can leave your high-risk status behind and return to the lower rates and reduced restrictions of a conventional account.