Application Declines Can Stem from Bad Credit, Tax Liens, Prohibited Business Types and More
Applying for a merchant account can be an intimidating process, especially if it is your first time in the marketplace.
Merchant processors or banks, depending on who you are applying to, assume risk to provide you with merchant processing capabilities, so there is an approval process involved. The application process evaluates you and your business information in order to evaluate and hopefully minimizetheir risk.
What risk, you might ask? Whenbusinesses go bankrupt or have ahugeamount of charge backs (the reversal of funds, requested by the customer, from your account back to the customer), this introduces financial risk and liability for merchant processors. Also, upstanding businesses like yours are not the only onestrying to get approved to debit bank accounts and credit cards. It’s an obvious opportunity for fraudsters. So, banks and merchant account processors do their homework before entering into a partnership.
As you proceed through this process, itwill behelpful to know about the top reasons why businesses fail to obtain approval, and how to avoid those complications in your merchant account application process.
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Top 5 Reasons for Merchant Account Declines:
1. Unfavorable personal credit history or active collection accounts
The personal credit history for the signer on the account (you, perhaps) is usually checked and will affect the decision for the approval. If you have multiple people who can sign for your business, be sure to utilize the ones who know they have good credit. Merchant processors typically require that the signer for the account be a person with at least some percentage of ownership, an officer, or someone with a major title if the company is registered as an LLC or Corporation.
See Also: Taking Control of Your Small Business Credit Score
2. Active tax liens
Personal or business related tax liens are considered a high-risk situation for any processor and will typically stop the process in its tracks. Resolve liens before starting a merchant account application.
3. Prohibited business types
Most merchant processors maintain a list of industries that they generally will not service due to their traditionally high-risk nature. It is the bank’s method of protecting its interests. Don’t take it personally if you are declined for being a prohibited business type, but do be aware that high-risk business types typically result in higher processing fees charged to the merchant to help cover the risk that is being assumed by the processor.
If you fall into the “high-risk” category and are having trouble getting approved, exploreother options by doing an internet search for “high-risk credit card processor.”
4. Type of business does not match processing volumes being requested
Every merchant account application requires the merchant to apply for their expected volumes based on past processing and expected growth in the near future. While any processor is excited for your business to grow, processing amounts outside of the “norm” for your industry will probably hurt rather than help your odds for getting approved.
Make sure to evaluate your business processing amounts based on your recent volumes and based on your expected growth in the next 4-6 months in order to develop a realistic, but optimistic number.
5. Present on the MATCH list
The TMF Match List is like the “blacklist” of merchant processors. Being on this register indicates that another bank has terminated a merchant account with you and has raised a red flag to the banking system that you are a credit risk.
To avoid this complication, make sure that any previous merchant accounts under your name were left in good standing. If you have any outstanding bills or fees owed to a previous provider, ensure that those are paid before expecting to get approved for another account.
See Also: Merchant Account Underwriting
There are other reasons your name might appear that require more time and involvement to resolve, to avoid high risk situations with any processor and to keep your account in good standing:
- Provide obvious ways for your customers to contact you
- Promptly respond to customer requests
- Process within your normal requested volumes
Treat thisprocess like any other where you are“under review” (think: applying for a loan or a job). Your best bet is to keepbridges unburned, to be as upfront as possible, and to do your homework before starting your merchant account application. Save yourself time and frustration, use the criteria listed here to tieup loose ends before you apply.
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Editor’s Note: This post was originally posted in March 2012and has been revamped and updated for accuracy and completeness.
FAQs
The primary reasons businesses are denied a new business bank account include the business being too new, documentation being missing or unverifiable, or credit issues on either business or personal credit reports.
Why would a business account be declined? ›
The primary reasons businesses are denied a new business bank account include the business being too new, documentation being missing or unverifiable, or credit issues on either business or personal credit reports.
Why do I keep getting denied for a business bank account? ›
Common reasons include a poor credit history, being in a high-risk industry, having a history of excessive chargebacks or fraudulent activity, incomplete or inaccurate application information, or not meeting the requirements and criteria set by the payment processor or acquiring bank.
What makes a merchant account high risk? ›
Businesses may be deemed high-risk based on their industry, such as tobacco or firearm sales, or because they sell internationally, have subscription pricing or don't have much cash in the bank. That's where high-risk merchant accounts come in.
How do you qualify for a merchant account? ›
Merchant Account Requirements List
- Business bank account. ...
- Financial statements. ...
- Business license. ...
- Physical address. ...
- Completed application. ...
- Employer Identification Number (EIN) ...
- Articles of incorporation. ...
- PCI compliance.
Banks conduct thorough checks on the business, its nature, and the individuals involved, which can make the process lengthy and complex, especially for non-residents or high-risk businesses.
Is it hard to get approved for a business bank account? ›
If you have an established business, the bank will check your business's credit score. If you're just starting a business, you may not have established business credit yet. However, if you have a poor business credit score or ChexSystems rating, banks may be reluctant to work with you.
Can you start a business with bad credit? ›
Unfortunately, if your credit score is below 600, your business funding options are more limited. Certain types of financing, such as invoice financing, do not require a minimum credit score to qualify. Some lenders will also offer equipment financing or a business cash advance if your credit score is in the 500's.
Can I open a business account if I am on ChexSystems? ›
This article is part of a larger series on Business Banking. Negative items on personal ChexSystems reports can stop you from opening a business checking account. Even if you plan on resolving the items, you may need to find an institution without ChexSystems as some items can take up to five years to fall off.
Can you get business credit with bad personal credit? ›
If you need a loan to finance your business, it will be hard to get one with bad credit. However, if you already have some startup capital and want to get started, you will probably be able to qualify for some credit cards. Or, consider getting a secured card to help you start building business credit.
Understanding High-Risk Merchant Accounts
Industries like adult entertainment, online gambling, nutraceuticals, and pharmaceuticals often fall into this category due to their inherent risks.
What are merchant risks? ›
Merchant risk encompasses a range of potential problems and challenges within the financial system: Fraud: One of the most significant merchant risks is fraud, which includes credit card fraud, identity theft, and deceptive business practices.
What are the disadvantages of a high-risk merchant account? ›
The most prominent downside of high-risk merchant accounts is the higher fees and associated costs. Since these accounts are tailored for riskier businesses, providers charge higher transaction fees, monthly fees, and setup costs.
How long does it take to get approved for a merchant account? ›
Merchant Account Approval
With traditional processors, the approval process can take anywhere from a couple days to a few weeks. On average, a processor can approve an account in a few business days. However, if you don't provide all information upfront or if you're a high risk business, it will take longer.
Do you need good credit for a merchant account? ›
In many circ*mstances, an ordinary or even good credit score may suffice. Your personal credit is only one of many factors considered by a processor's underwriting staff when evaluating a merchant account application. This means that a low credit score will not inevitably result in an application being refused.
What is the limit of a merchant account? ›
A merchant account limit is the maximum amount of money a merchant can process each month. Merchant account limits exist to protect the bank and processor from additional risk. A high-risk merchant account often has different limits than a low-risk as high-risk merchants typically deal with more chargebacks and fraud.
What to do if you can't get a business account? ›
Gather essential documents, including ID, company registration details, director information, and specifics of any adverse credit history. Help After Rejection: Merchant Advice Service collaborates with partner banks to offer accounts to those declined elsewhere.
Why is my account declining when I have money? ›
There are several reasons why a debit card may be declined even if you have money in your account. Common reasons include travel and reaching your daily purchase limit. Stay on top of your cards and consider using budgeting apps to help avoid debit card denial.
Why is my account declining? ›
If the balance on your bank account is too low, or you get close to or go over your credit card's credit limit, your card may be declined. If your bank or credit union offers alerts to flag fraud on your account, sign up. These alerts can let you know about some possible problems before your card is declined.
Can a bank refuse your business? ›
Yes. Banks generally have discretion to determine to which parties and under what conditions they provide their products and services.
