The world of finance is complicated, and it is rare that things proceed exactly according to plan. One hiccup you may encounter as a business owner is having your merchant services application denied. This may be due to one or several reasons, but the most common include the following:
1. You Have Bad Credit
Even if your company is brand new and has yet to establish a credit history, banks and credit card processing providers will look at your personal credit and that of any other companies in which you have ownership. If your credit does not meet minimum requirements, your merchant services account application may be denied.
Solution: if you have a low credit score, you might want to look into finding a business partner with a better credit history who can sign the merchant agreement. It is also a good idea to build up a good cash savings to demonstrate to the bank that you are a safe investment.
2. Your Business Is Considered “High Risk”
There are several industries that are more susceptible to fraud and chargebacks. These industries are categorized as “high risk” and include the following:
- Tobacco sales
- Gambling
- Firearms/ammunition
- Financial services
- Travel
- Hospitality
- Medical and legal services
Many merchant account providers are wary of working with high risk businesses and will deny an application simply because you fall under this category.
Solution: Just because you have been denied by one merchant services provider does not mean you will be rejected by another. Once you have identified your business as high-risk, look for a provider who is willing to work with these types of businesses.
Many merchant service providers will specify on their website whether or not they deal with high-risk accounts. If you can’t find it on their site, call ahead before you begin the application process.
3. You Have Had a Previous Merchant Account Terminated
If you have left a previous merchant account in bad standing and it was ultimately terminated, you may be on a list called “MATCH.” This stands for Mastercard Alert to Control High Risk Merchants.”
The MATCH, also known as Terminated Merchant File (TMF), alerts account providers to any applicants who have had an account terminated in the past. This could be due to several reasons, namely unpaid bills, fraud, or too many chargebacks.
Solution: This can be a tricky issue, but it is not impossible to have your business removed from the MATCH/TMF list. You will need to get in touch with the bank that put you on the list in the first place. If you are not aware of why you were listed, inquire as to the specific reasons and work to address them. For example, you will want to pay any outstanding invoices.
Once you have mitigated any outstanding issues, request that the bank remove you from the list.
4. You Have Personal or Business Tax Liens
Tax liens are imposed when an individual or business is delinquent in paying taxes. This has a similar effect on your application as poor credit history. Merchant account providers will look at your tax history during the underwriting process and view any liens as a red flag.
Solution: Address any tax issues prior to submitting an application for merchant services. Work with a professional accountant to ensure your taxes and general financial history are in excellent standing.
5. Your Business Volume Is Inconsistent
Different industries have “standards” when it comes to processing volumes. When you apply, you will give the provider an estimate of your projected sales volume. The bank will compare this estimate with the average amount usually processed by your type of business. Inconsistencies between your sales volume and the average are likely to cause concern.
Solution: Don’t overestimate your sales volume. Be transparent and give realistic numbers. If you project that you will be processing a higher amount than the industry standard, provide documentation that supports your calculations.
What To Do If My Merchant Account Was Denied?
Being denied for merchant services can be a setback, but it does not mean you cannot find another provider willing to work with you. If your account was denied and you are unsure why, hiring a merchant services broker is a great place to start. A broker will be well aware of what merchant providers consider “red flags” and help you to address any issues. He or she will also know which companies work with high-risk industries.
If you need merchant services but you are unsure where to start or your application has been denied, contact Brendon Wegner at Summit Payments. He can help you find the processing provider best suited to your business and assist you in making the application process as smooth as possible.