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Is Your Credit History Haunting Your Ability To Get A Merchant Account?

Posted: 20 Dec 2012 05:02 AM PST

In a day and age when many shoppers still love to use plastic, is your small business still living in the past? If you just offer cash options for customers to pay for your products and/or services, you are essentially missing out on a sizable amount of business. Yes, despite efforts by many Americans to pay down their credit card debts, plastic is still the preferred option for a large segment of the population.

What may be stopping you from obtaining a merchant account and offering the plastic option is your own credit history. Did you run up a decent amount of personal debt over the years? Did you make some bad decisions in a prior business, therefore resulting in a large amount of credit card debt? Have you defaulted on one or more credit cards and essentially did not pay the bill?

In any of those situations, you can certainly be viewed as a bad risk by a lending institution, therefore making it hard for you to secure a merchant account. Without a merchant account, what are your chances of increasing your customer list and growing your company in 2013?

Should you find yourself in the position of needing a merchant account with a bad credit history, there are options for you. Among those include:

# 1. Plead your case

A bad credit history does not automatically eliminate you from obtaining a small business merchant account. Face it, lending institutions who offer merchant accounts need to do business too, so they may be more than willing to work with you. Explain (honestly) why your credit score is what it is (a score of 700 or better these days is pretty much a threshold for having a good shot at getting the account).

If you went through a divorce, major illness, or other event that had a negative impact on your credit, point it out. Above all, be honest about why your credit is in the spot it is at;

# 2. Tout your history

If you have been in business for a while and are now trying to get a merchant account, highlight the good side of your business history. The person reviewing your application will have something else to look at besides your personal credit report, whereas a new business is pretty much riding on getting the account despite the negative personal credit history.

In the event you have cash reserves, they can also work in your favor, be they in your business or personal banking account. Whatever positive attributes about you and your small business you can produce, all the better;

# 3. Research providers

As noted, there is no shortage of providers who offer merchant accounts to business owners with bad credit. The key is in finding the ones who have your best interests, not their best interests alone at heart. If the offer sounds too good to be true, there is a high possibility it is. The last thing you want to do is get into a deal where you end up paying a number of "hidden" fees and fall further into debt. Review all the details, check out the provider's history too, seeing if they have been brought to the attention of the Better Business Bureau (BBB) and/or have a trail of customer complaints.

If you are having trouble finding a provider, consider applying through the banking institution you already do business with. There is also the option of teaming up with an independent sales organization (ISO), someone that will essentially act as middleman, working with both you and the merchant provider. While this could lessen the perceived risk from the view of the merchant provider, you could wind up paying a significant fee for the service of the ISO.

# 4. Consider someone cosigning with you

There are pros and cons of having a family member, friend or business associate cosign on an account with you. On the plus side, having someone with a good credit record cosign can speed the application process through more quickly, typically resulting in approval. On the down side, what if you run into more financial woes and have to default, leaving the cosigner stuck with a mess? In that case, it could lead to a problem with the relationship. If you can sign off on the account on your own despite past credit issues, all the better.

In the end, offering customers the plastic option is something you want to take credit for.

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Images: "Hand draw a hangman game for credit history concept / Shutterstock.com"

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