Many small startups often have difficulty finding the right backing from a bank or traditional financial institutions. If they’ve determined that you qualify as being “high risk,” you also won’t be eligible for conventional processing agreements. Many small businesses thrive on e-commerce transactions and being unable to accept payments because you’ve been deemed too risky could spell the end of your business.

Instead, you’ll have to find services who are willing to accept liability for the risk involved with your business. Unfortunately, this also means that it comes at a higher cost to you. But just because you may be a high risk doesn’t mean you offer low-quality services. Sometimes even the most prospective business models require applying for a high-risk merchant account for their fair opportunity at success.

But what makes you a high-risk business exactly?

High-Risk Criteria

You may run a profitable business, but profit isn’t what differentiates high and low risk when it comes to taking payments. Unfortunately, there are many reasons why you could be dealing with risky business. For example, if being blacklisted by credit card companies, having poor personal credit as the guarantor, or are involved in an industry that has a history of high charge backs and refunds, makes you “high risk.”

Likewise, if you sell future deliverable products, expensive products, or products that some banks deem prohibited, you also fall under the too-risky category. Some industries that meet one or more of these criteria include MLM businesses, telemarketing, selling event tickets or hotel reservations, travel services, timeshare ads, annual memberships, bail bonds, software downloads, firearms, online dating sites, and adult products.

Applying for the Right Merchant Account

Many companies find themselves having to open high-risk merchant accounts due to the nature of their business. Finding the right provider can also be difficult since many service providers follow strict guidelines for merchant account approval. But even while getting a high-risk account, you must still ensure that your company is compliant with federal, state, and local laws and regulations.

It's also highly likely that your insurer will charge you high premiums to provide the required coverage to conduct business if you run a high-risk operation. If you have poor personal or business credit, expect a higher loan rate and a high down payment, including expenditures related to maintaining compliance. Being non-compliant with the necessary laws and regulations can incur penalty fees and lawsuits.

Some might suggest there’s no reward without risk. But play it safe with your business by opening a high-risk merchant account and complying with the law if you run a high-risk business.