Anyone preparing to launch a new business knows that not every contingency can be planned for and that, to some extent, risks come with the territory. However, you might not have expected to be considered a “high-risk” business. Before you panic or jump to conclusions, you should learn about what this term means for your enterprise.
Why it matters.
If your business is labeled as high-risk, it’s important to recognize why. Chances are, you’re just operating in a specialty market with a little more risk. The bottom line is that lenders and payment processing companies are not charitable organizations. Just like you, they are in business to make a profit. Therefore, it is in their interest to know exactly who they will be doing business with. To understand this concept, think about the mental process you go through when someone asks if they can borrow money from you. Your first instinct is to assess the likelihood that your funds will be repaid in full and in a timely fashion. Business lenders and merchant account providers are no different.
Factors that determine your risk level.
Merchant service providers examine a variety of factors in making their determination of your risk level. Some have to do with the industry you operate your business in while others are directly related to specific practices.
Certain industries are particularly risky include:
- Debt collection.
- Adult entertainment.
In addition, online businesses are usually viewed as more risky than traditional brick-and-mortar businesses because of the lack of personal interaction between buyer and seller.
Lenders and payment companies are also wary of businesses that are likely to experience a high number of customer chargebacks, accidents or fatalities, or that are subjected to strict government regulations. Because any or all of these conditions can be both costly and unpredictable for your business, that is often more than enough reason for your business to be deemed high-risk.
The consequences of having a high-risk status.
Believe it or not, this designation is not fatal. In fact, many companies are able to become quite successful even though they are high-risk. That being said, this status can be burdensome.
For one thing, you may run across financial institutions that are unwilling to invest in your business. After all, their first priority is to look out for their own interests. If they perceive you as apt to default, they will run the other way. The same is also true of some of the payment processors that help merchants to facilitate their payments.
If you find yourself rejected by standard processors, there is another valid option. You will need to open a merchant account for high-risk businesses. It will be underwritten by a company that is willing and able to accept the higher level of risk that you pose. However, your merchant account may be subject to increased processing fees. Although it might rankle you to shell out additional dollars to run your company, these high-risk services and accounts do provide you with the solid financial foundation that is vital for any growing business.
In the end, unpredictability is a part of life. If you find that your business is considered high-risk, just be sure to find merchant account providers who are willing to give you a chance. Read your contract, comply with the rules, and pay your bills on time, and you will likely find that you can overcome the “high-risk” label.