If you’ve started to grow your business, or if you’re sick of paper invoices and snail mail to collect payments—you might be ready to open a merchant account to accept credit cards.

Before you get started, it’s good to know what to expect when applying for a merchant account.

  • How long will it take?
  • What type of paperwork is involved?
  • What do the underwriters want to see? (Wait, I have to be underwritten?)

In this two-part series, we’ll go cover the 10 Things You Need to Know About Opening a Merchant Account.

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1. Underwriting is necessary and with some guidance it’s pretty straightforward:

Payment processors and their partnering banks take on a certain level of risk by providing merchant accounts for businesses. Every dollar transacted through their system could be charged back, potentially leaving the bank responsible for the funds.

Example: Say a business processes a transaction through their merchant account but can’t deliver the product or service, (because they closed, can’t afford payroll, etc.). The customer, in turn, issues a chargeback, the bank is then typically responsible for issuing a refund to the customer, often before they have recouped those funds from the merchant.

When assessing the risk associated with new accounts, banks look at the possibility of chargebacks, as well as the legitimacy of the business (they don’t want to give someone with fraudulent intentions the ability to debit credit cards).

To ensure a smooth underwriting process, we encourage you to work with an experienced partner, much like you would use a loan expert to help with a mortgage. Some merchant account providers have a department dedicated to helping new merchants set up their accounts.

2. You need a business bank account:

Even if you’re a sole proprietorship, you’ll need a business bank account before opening a merchant account. You can open one in about 15 minutes at your local branch and they only require that you have a business license and EIN (employer identification number, which can be your social security number if you’re a sole prop with zero employees). You can also apply for an EIN and receive it instantly by visiting the IRS website.

Your business bank account will be the default destination for the funds you transact, as well as the account where transaction fees will be debited (you can sometimes separate credits and debits into separate accounts, but you must request it). It’s important to keep a balance in this account that is large enough to cover any processing fees, as well as monthly software fees, if applicable.

3. A business license is almost always required:

Unless you’re a sole proprietorship operating in certain counties, you probably already have a business license of some sort. This can be anything from a fictitious name statement to articles of incorporation. You’ll need the license for reasons outside of opening a merchant account, so if you haven’t already registered, visit your Secretary of State’s website to do so. Merchant account underwriters review and file a copy of your license to validate your business’s standing.

4. It all starts with an application, which you can sometimes complete online:

The merchant account underwriting requires an application. Many providers use an online version of the application so you don’t have to hassle with FAX or mail. PaySimple’s application, for example, only takes about 10 minutes to complete, and allows the business owner to sign online, eliminating the need for printing, scanning, or faxing.

The application will request information about the business as well as the authorized signer on the account. You’ll need your bank account and routing numbers, tax ID (EIN), and processing volumes (or estimates) before you start. Other information collected on the application may include (but is not limited to): business start date, contact information, and authorized signer information.

5. Different types of payment acceptance may require separate merchant accounts:

If you’re looking to accept credit card and ACH payments, you may actually go through separate underwriting procedures with two separate processors. While the various credit cards you offer may be transacted through one processor, your ACH/echeck transactions typically go through another. It usually doesn’t require an extra application if you go through a software provider or independent sales organization (“ISO”).

On your application, you will select the types of payments you would like to accept. If you have someone helping you submit your application, they will compile the submission along with a copy of a voided check, and securely send it to the applicable processors. Details about the various parties involved with your account are available in your application’s Terms and Conditions. Part 2 of this topic covers information like: necessary documents, approval time, and fees.

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Editor’s Note: This post was originally posted in June 2011 and has been revamped and updated for accuracy and completeness.



PaySimple is the leading provider of Service Commerce solutions, supporting the success of thousands of SMBs across the country. Its solutions change the lives of business owners by bringing simplicity and flow to their businesses. Service-based businesses can expand marketing, accept payments, and improve customer retention using one SaaS platform. Products include: ecommerce, appointment scheduling, credit card processing, recurring billing, mobile payments, secure customer management, e-invoicing, cash flow reporting, e-check processing, and more. PaySimple is headquartered in the heart of downtown Denver, CO.

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