Tens of millions of new businesses are started up each and every year, and even though there’s a lot of work to be done and a real risk of failure, many aspiring entrepreneurs and hopeful business owners battle through the process to bring their ideas to life and try to make their professional dreams come true.
If you’ve gone to all the hard work of developing a business idea, putting together a plan, seeking out funding, investing in the necessary equipment, setting up a marketing strategy, and everything else associated with starting a new small business, only to find that you’re being rejected by banks due to your ‘high risk’ status, you might feel quite disheartened and bewildered as well.
Many inexperienced entrepreneurs get into the business world with little understanding of what constitutes a high risk business and are unsure of what to do when they hear the news. However, there’s no need to despair, high risk merchant accounts and trusted partners are out there to help you through the process, and there are many cases of high risk businesses succeeding over the years.
To help you understand more about what high risk businesses are, how a business is classified as high risk, and what you can do if you find yourself in the high risk group, here are some common questions and answers on the subject.
What Is a High Risk Business?
A high risk business is one that different entities like banks and credit card processing providers deem to be risky, and they can make this decision based on several factors. Basically, in a bank’s view, a business is classed as high risk if the bank believes it to have a higher-than-average chance of failing, defaulting on loans, or not being able to provide its customers with the goods and services they expect.
Who Is Actually at Risk?
When we talk about a high risk business, it’s important to know who is being regarded as ‘at risk’ and why this matters. Put simply, after a payment has been made, a cardholder has a period of up to 180 days to dispute a transaction and request their money back from their credit card company or bank.
So, if a customer comes to a high risk business and makes a payment, but then doesn’t receive their goods or services or is ultimately unhappy with the service received, they might request their cash back, even several months after the transaction took place.
The banks and credit card providers are therefore the ones who can be at risk, as the merchant might not be able to repay all of the unhappy customers if their business is new or their credit history is unproven, leaving the banks and payment providers to settle up and take matters further.
How Is a Business Classed as High Risk?
There are many different reasons and factors that can go into determining whether a business is deemed to be high risk or not, and different providers and banks may have different rules and definitions in this regard. One of them may be very strict and have a long list of reasons why it classes companies as high risk, while another may be a little more lenient in certain areas. Here are just some of the factors that can contribute towards a business’ high risk classification:
- A history of chargebacks and unsatisfied customers
- Lots of returns
- A long delivery process for your products
- Starting a business in a new and unproven industry
- A poor credit score
- A lack of credit history
- Only selling to customers in other countries
What Are High Risk Industries?
A few examples of high risk industries include vaping, gaming, gambling, drug stores, adult dating, cryptocurrencies, travel, auto rental, and dietary supplements, but there are many others.
What Can I Do?
Just because you have a high risk business, you don’t have to shut down or cancel your plans. You can still operate as normal, but you may be rejected for regular accounts from banks, so you’ll have to find a high risk merchant account from a trusted provider instead. These accounts function in much the same way as regular merchant accounts, but fees and rates can be a little different to compensate for the added risk. You can also work towards building up your credit score over time and proving that your business can be trusted.
Final Word
Learning that your business is high risk might be worrying to begin with, but as long as you find a trusted high risk merchant account provider who can answer your questions and give you the support you need, your business can still be a big success.
