A widespread misconception when applying for a merchant account is that providers only approve applications from low-risk businesses with good credit standing. Yes, most commercial providers choose to work with these types of applicants. However, that does not mean bad credit business owners don’t have a shot at getting a merchant account.
Considering that aroundhalf of Americans have a less-than-average credit standing, it wouldn’t be very profitable for merchant account service providers to completely ignore business owners with low scores. After all, bad credit doesn’t automatically equate to poor financial management skills.
This especially applies to startup entrepreneurs. Poor business performance has a very negative impact on one’s credit score. Even if you are a frugal, prudent, and sensible individual, your score may plummet if one of your business ventures fails—or even goes underwater.
Note that venturing into business is a very bold, risky move, and there’s no guaranteeing one’s success. Statistics show that 1 in every 12 American startups fail.
Unfortunately, commercial institutions do not consider these factors. As far as they’re concerned, businesses with bad credit standing are bad investments—no matter the cause of their low score.
The good news is that bad credit merchants can still seek help from other non-traditional institutions. Many alternative merchant account service providers specialize in working with business owners who have low credit scores or even operate in high-risk industries. You just need to know where to look.
Difference Between Bad Credit/High-Risk and Traditional Merchant Account Service Providers
Unlike commercial brands, bad credit merchant account providers specialize in working with business owners who are considered high-risk. They don’t necessarily have a lenient screening process that’s easy to pass. Instead, they are willing to carry on the risk of providing merchant account services to clients most commercial institutions would label risky.
Some of the most popular high-risk merchant account service providers in the country include:
PaymentCloud is a merchant account service provider founded in 2010. They specialize in providing payment processing solutions to high-risk clients from the mail order/telephone order and e-commerce industry.
The brand has a strong social media presence and is endorsed by many users. Clients praise them for not charging set up fees, providing a free credit card terminal to account holders, and being available 24/7 to take on customer issues.
2. Soar Payments
Soar Payments is a bad credit and high-risk merchant account services provider that offers some of the most competitively priced rates on the market. The rates are low enough to attract even low-risk merchants.
Clients continue to choose Soar Payments for their merchant account service needs because they have an automated screening process, no setup/application fees, provide customized price quotes, and have a fast underwriting procedure. The only downside is they don’t work with CBD oil businesses.
3. Durango Merchant Services
Durango was established in 1999 and is by far among the oldest merchant account service providers in the country. They’ve been working with high-risk and bad credit merchants for the past two decades.
Apart from their unrivaled experience, Durango is preferred by many merchants because they have competitively priced rates, offer fair contract terms, provide offshore merchant accounts, and assign each client to a dedicated account manager.
4. SMB Global
High-risk business owners who need an offshore account can reach out to SMB Global. Not only do they offer generous contract terms on their offshore account services, but they also agree to work with an array of high-risk businesses. They have clients coming from various industries ranging from adult entertainment to furniture sales.
5. Easy Pay Direct
High-risk businesses who just can’t seem to get their applications approved can turn straight to Easy Pay Direct. Even among other bad credit merchant account service providers, they have an extensive range of clients and service businesses from all types of high-risk industries. Whether you have low credit standing or deal with firearms, they can work out a deal for you.
The only downside here is that Easy Pay Direct has considerably high fees. However, business owners who can no longer shoulder the rates can cancel their account any time they want without paying an early termination fee.
What Causes One to Get Bad Credit
Americans are no strangers to poor credit. Reports say that more than 53% of Americans have tried applying for a credit card, personal loan, or auto loan at least once and been rejected for low credit standing.
Various factors could affect one’s overall credit score. These include:
- Lack of Credit Education: Surveys show that 54% of gen Z, 23% of millennials, 20% of baby boomers, and 18% of gen X consumers are unaware of their current credit standing. Most of them either don’t bother checking or can’t understand the importance of credit scores.
- Poor Spending Habits: Impulsive spending habits, coupled with multiple credit cards, can lead to high card debts that might take numerous paydays to pay off.
- Failure to Pay on Time: Reports reveal that a quarter of all millennial and gen X consumers have more than $4,000 of unpaid monthly credit card debt.
- Multiple Credit Cards: Opening multiple credit card accounts can negatively affect your overall score if you cannot pay the dues and fees associated with it.
Choosing a Reliable Bad Credit Merchant Account Service Provider
Don’t be too quick to work with the first merchant account services provider that accepts your application. You need to be extra careful. Bear in mind that merchant accounts are long-term partnerships and cannot easily be canceled if you suddenly change your mind about the terms you already agreed to.
For best results, make sure you look for merchant account service providers that:
Specialize in High-Risk Businesses
The best bad credit merchant account providers to work with are those backed by years of experience handling high-risk businesses. Apart from bad credit merchants, their clients should come from companies that operate in risky industries, including:
- Airline charters
- Emotional support chat sites
- Legal firms
- CBD, cigarette, and vape shops
- Importation/exportation companies
- Nightclubs/cabaret clubs
- SEO service agencies
- Vitamin and wellness supplement shops
Have Cost-Efficient Rates
Contrary to popular belief, bad credit merchants shouldn’t be forced to settle with unnecessarily high fees just to compensate for their poor credit standing. Look for options that charge fair, cost-efficient, competitively priced rates.
- Set-Up Fees: Shop around for merchant account providers that have low set-up and POS system installation fees.
- Account Fees: Clarify with your prospective provider if they charge any monthly or annual fees.
- Processing Rates: These are the fees charged for processing payments per-transaction. Merchants can choose from a tiered or interchange-plus pricing system.
- Cancellation Fees: Merchant account service providers shouldn’t have to force their clients to stay by binding them with an expensive cancellation fee.
Offer Transparency With Their Terms and Conditions
Bear in mind that many merchant account providers take advantage of desperate bad credit business owners. They give clients false hopes and promises then lock them in with insanely high fees/rates, unfair agreement terms, and challenging cancellation requirements.
To avoid these types of issues, make sure to read the contract several times before signing anything. Remember: you already have a low credit score. Working with shady merchant account providers—whether intentionally or not—will only drag down your standing further.
How to Apply for a Bad Credit or High-Risk Merchant Account
Qualifying for a bad credit merchant account is significantly easier than most commercial options, but that does not mean your application will automatically get approved. Bear in mind that you still need to meet certain requirements. To get started, you’ll have to submit:
- Government ID/SSS Number/EIN: Submit clear copies of the necessary identification requirements your merchant account provider asks from you.
- Bank Statements: Most providers will request to see your personal/business account bank statements dating back to at least three months ago. Do not tamper with these documents. Remember: bad credit merchant account providers are more lenient with poor credit, but no brand will accept fake paperwork.
- Business Registration and Paperwork: Different providers have varying requirements when it comes to business tenure and duration. Some may require clients to have a business that has been operating for more than a year now, while others may accept working with startups.
- Chargeback Paperwork: Most providers are strict about this. They agree to work with high-risk and poor-credit businesses, but they often limit their services to those who can prove low chargeback ratios.
*Note that the actual requirements may change depending on the provider you plan on working with.
Most common causes of bad credit
To avoid getting a poor credit score, you need to understand what factors financial institutions take into consideration when grading individuals and business owners.
Business loans and bad credit scores
The study aims to uncover what factors and criteria financial institutions consider when approving and declining business loan applications of small to medium enterprises.
Getting funded with poor credit scores
Contrary to popular belief, even those with poor credit scores can still get approved for business loans. Similar to applying for a merchant account, you need to look for a lender who specializes in funding bankrupt, low-credit, or startup businesses.
Americans and bad credit scores
Reports say that more than 53% of Americans are declined credit cards, personal loans, and auto loans due to poor credit standing.
If you were a high-risk business owner, would you consider working with bad credit merchant account providers or not? Share your thoughts with us in the comments section below!