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 minimize their risk.

What risk, you might ask? When businesses go bankrupt or have a huge amount 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 ones trying 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, it will be helpful 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, explore other 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 this process like any other where you are “under review” (think: applying for a loan or a job). Your best bet is to keep bridges 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 tie up loose ends before you apply.

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Editor’s Note: This post was originally posted in March 2012 and has been revamped and updated for accuracy and completeness.